US: Fed Holds the Line on Interest Rates, Jobless Claims Surprise; EUR: German PPI Dips, Eurozone Consumer Confidence Wavers; ZAR: Hawkish hold on rate hikes by Saffa MPC; GBP: BOE ends 14-month rate hike streak, holds policy rate steady at 5.25% in September, while UK consumer confidence rises to -21, the highest since January 2022; JPY: Bank of Japan Maintains Interest Rate and Japanese Ministry of Finance Monitoring Forex Market Closely AUS: Australia's PMIs Surge, Government Breaks 15-Year Surplus Drought.
USD: FED HOLDS LINE ON INTEREST RATES ALONGSIDE A JOBLESS CLAIMS SURPRISE
In the latest turn of economic events, the Federal Reserve has chosen to maintain the status quo by keeping interest rates steady. This decision solidifies the range between 5.25% and 5.5%, part of the Fed's ongoing strategy to rein in inflation and navigate toward a gentle economic slowdown, often referred to as a "soft landing."
Looking into the crystal ball of future rate actions, the Fed's "dot-plot" reveals intriguing insights. The median rate projection for 2023 remains anchored at 5.6%, tantalizingly hinting at the possibility of another rate hike this year, though it stops short of making a concrete commitment.
But the real twist comes in 2024, as the median rate forecast rises to 5.1%. This signals a shift from the previous prediction of four rate cuts to now anticipating two cuts in 2024.
In the backdrop of these monetary maneuvers, the Fed has also boosted its economic outlook.
The revised projections paint a rosier picture, with an expected 2.1% growth rate for the economy in 2023, a significant upgrade from the earlier modest estimate of 0.4%. This adjustment underscores the Fed's growing confidence in its ability to rein in the persistent specter of inflation.
On a different note, the labor market offers an unexpected twist. Jobless claims, which have been closely watched, saw an unexpected dip. Data from the Labor Department reveals that initial claims for state unemployment benefits fell by 20,000 to 201,000 for the week ending September 16.
However, despite this positive surprise, the labor market remains tight, with claims consistently hovering within the range of 194,000 to 265,000 throughout the year.
EUR: GERMAN PPI DIPS & EUROZONE CONSUMER CONFIDENCE RISES
In the realm of economic indicators, Germany's producer price index (PPI) took a notable turn. August saw a year-on-year decline, with PPI slipping to 12.6%, marking its second consecutive monthly decrease.
However, when we focus on the figures without the influence of energy, producer prices exhibited growth, showing a 1.2% increase.
Taking a closer look at the monthly trends, PPI bounced back in August, surging to 0.30% from a previous -1.10%. This exceeded expectations of a 0.2% rise and signifies the first monthly upturn in four months.
Shifting our lens to the broader Eurozone, the European Commission's preliminary estimate paints a picture of waning consumer confidence in September.
Eurozone consumer morale declined to -17.8 this month, down from -16.0 in August. Interestingly, amidst these developments, the euro stood its ground against the dollar, maintaining a steadfast course at 1.0643.
ZAR: SAFFA MPC WITH HAWKISH HOLD ON RATE HIKES
The Saffa Monetary Policy Committee (MPC) did as anticipated by keeping interest rates unchanged during its September meeting. Nonetheless, there are lingering concerns about potential risks, given the persistence of inflation and increasing funding vulnerabilities.
In this context, the MPC's decision to maintain the status quo is a relief for debt holders. Notably, the narrow three-two vote margin that prevented a 25 basis point increase underscores how close the committee was to pursuing a rate hike.
The MPC reiterated its commitment to a restrictive policy stance and is likely to maintain this position. There may be a slight relaxation in this stance as inflation edges higher in the coming months, but this will only happen if the data confirms that the MPC can effectively ensure price stability within its two-year policy horizon. The credibility of the MPC hinges on achieving this goal.
Moreover, the MPC has revised its GDP growth forecast upward, from 0.4% to 0.7%. This adjustment aligns with the stronger-than-expected GDP data for the second quarter of 2023, which indicates the resilience of the productive sector of the economy despite ongoing structural limitations.
Additionally, spending by various economic entities has continued to grow in real terms, adjusting for inflation, and there has been notable stability in investment growth.
The stronger GDP growth has led to a slight positive shift in the output gap, suggesting that the impact of policy on overall economic growth is not expected to be overly detrimental. This optimism stems from the belief that Saffa private-sector investment and potential involvement in critical network industries can offset the cyclical effects of tight policy measures.
GBP: BoE ENDS 14-MONTH RATE HIKE STREAK AS UK CONSUMER CONFIDENCE INCREASES
In a pivotal September meeting, the Bank of England's Monetary Policy Committee (MPC) took a bold step. With a close 5-4 vote, they decided to keep the policy rate at 5.25%, holding steady since August.
This momentous move brings an end to 14 months of relentless rate hikes, initiated in December 2021 to combat inflation. But that's not all! Simultaneously, there's a glimmer of hope in the UK's consumer confidence.
The Gfk Consumer Confidence Index surged by an impressive 4 points in September. According to Joe Staton, Gfk's Client Strategy Director, "Amidst falling inflation, rising wages, and persistently high interest rates, UK consumer confidence soared to minus 21, hitting levels not seen since January 2022."
JPY: BoJ MAINTAINS INTEREST RATE WITH CLOSE EYE ON FOREX MARKET ACTIVITY
In a decisive move, the Bank of Japan (BOJ) has opted to maintain its existing 0.1% interest rate, applicable to the excess reserves held by financial institutions at the central bank.
Simultaneously, the BOJ stands firm on its commitment to keep the 10-year JGB yield at around 0%. The BOJ's message is clear; they intend to stick with their ultra-loose monetary policy "for as long as necessary to ensure the stability of the 2% inflation target."
Following this announcement, the USD/JPY saw a modest rebound, trading at 148.06, marking a 0.34% gain for the day. However, the Ministry of Finance (MOF) isn't taking its eyes off the forex market.
They're closely monitoring developments and are ready to explore all available options should the Yen's strength wane beyond acceptable limits.
AUS: PMIs SURGE, BREAKING 15-YEAR SURPLUS DROUGHT
September brought a wave of optimism to Australia's economic landscape. While the preliminary S&P Global Manufacturing PMI eased slightly from 49.6 to 48.2, indicating a minor slowdown in manufacturing, the Services PMI stole the spotlight.
It soared from 47.8 in August to a promising 50.5, showcasing a robust influx of new business, both on the domestic and international fronts. The result? A buoyant Composite Index PMI, ascending from 48.0 to a solid 50.2.
However, the Australian Dollar (AUD) finds itself under pressure due to the Federal Reserve's hawkish stance. Despite a brief uptick from the 0.6385 level, immediate gains for the currency appear elusive.
In a remarkable fiscal turnaround, the Australian government proudly declared a budget surplus of AUD 22.1 billion for the fiscal year closing on June 30, 2023.
This marks the first surplus in 15 years, propelled by low unemployment rates and the soaring prices of commodities like iron ore, coal, and gas. Yet, Treasurer Jim Chalmers maintains a cautious outlook, citing reduced demand from China and the substantial impact of high interest rates on economic growth.
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