Is the Bond Liquidation Complete? | UK Inflation | Chinese Economic Growth

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Is the Bond Liquidation Complete?

Debt investors received some relief this week as bonds rallied, pushing the yield on benchmark U.S. Treasuries down from a 16-year high, after stronger jobs data than planned on October 6. Ten-year Treasury yields fell 0.15 percentage points this week to 4.63 percent, despite a brief rebound on Thursday when official figures showed the US inflation rate had failed to slow in accordance with expectations. Yields move inversely to prices.

After a market rout in which benchmark U.S. debt yields rose 1.6 percentage points over six months, investors and economists are now wondering whether interest rates and bond yields have reached a summit.

A number of Federal Reserve speakers signaled this week that the central bank may be finished raising interest rates, with Fed Vice Chairman Philip Jefferson suggesting that the sharp rise in long-term yields could help limit the need for further rate hikes.

Analysts at Capital Economics believe bond yields will continue to fall “because we believe disappointing growth and lower-than-expected inflation will lead the Fed to cut rates sooner and more than markets are currently pricing in.”

But others are not convinced. Florian Ielpo, head of macro at Lombard Odier Investment Managers, expects monetary policy to remain hawkish as inflation persists above target and falling savings rates drive up interest rates. real interest rates (rates after accounting for inflation) as the amount of available capital increases. its cost.

“The two factors combined make a 5 percent rate for U.S. 10-year bonds a strong anchor,” he said. – Mary McDougall

Is UK Inflation still falling?

Most economists expect data released on Wednesday to show a further slowdown in UK inflation in September. A larger-than-expected fall in the annual rate of price growth, to 6.7 percent in August, prompted the Bank of England to leave interest rates unchanged in September after 14 consecutive increases. A further fall in inflation could help reinforce investors’ expectations that the BoE will keep rates unchanged at its next meeting on November 2.

Economists polled by Reuters forecast that consumer price inflation fell to 6.5 percent last month, with core inflation coming in at 6 percent from 6.2 percent in August.

However, a surprise rise in inflation could change market expectations. Labor market data, released Tuesday, will also be closely watched by investors and policymakers for signs of continued pressure on domestic prices.

Ellie Henderson, an economist at Investec, said annual adjustments to private school fees and rising gas prices would push up inflation in September, but she believed these effects would be offset by an easing of pressure on prices of food and clothing.

Unofficial measures of food inflation, such as retail and grocery inflation, published by the British Retail Consortium and research firm Kantar, have both shown an easing of price pressures in September.

The downward trend in inflation is expected to continue beyond September, according to Sanjay Raja, an economist at Deutsche Bank. “After significant upside surprises in the first half of the year, we expect inflation to continue its unabated descent in the second half of 2023,” he said.

It also expects inflation to be lower than the Bank of England’s projections in September and for the rest of the year.

However, Investec’s Henderson warned of “upward risks” to the inflation outlook, including from rising energy prices resulting from the war in Israel and Gaza, reductions in oil supplies from Saudi Arabia and the damaged gas pipeline in northern Europe. – Valentina Romei

How fast is the Chinese economy growing?

As China struggles to regain confidence in its economic outlook and foreign investors continue to avoid Chinese stocks, markets will focus on the country’s third-quarter gross domestic product figure released on Wednesday, as well as possible variations in reference interest rate.

The median forecast of economists surveyed by Bloomberg is for growth of 4.5% year-on-year in the third quarter. That would be slower than in the second quarter – largely thanks to a now-absent base effect – and also significantly below Beijing’s target of annual growth of “around 5 percent”.

ANZ economists expect growth to match expectations thanks to improvements in other major data due to be released on Wednesday – industrial production, retail sales, and capital investment. Outperformance in one or the other of this data could potentially push stocks higher.

The growth figures are likely to change expectations ahead of Friday’s interest rate announcements, with most economists expecting Chinese banks to leave benchmark prime lending rates unchanged. But ANZ economists suggest that “it is possible that banks could decide to reduce the one-year LPR by 0.05 percentage points”, which could potentially boost short-term liquidity in China’s banking system. – Hudson Lockett

Expanding on the Topics

Is the Bond Liquidation Complete?

The recent rally in bonds provides some relief to debt investors, but the question remains: is the bond liquidation complete? After witnessing a market rout that saw benchmark U.S. debt yields rise significantly, there is a growing speculation among investors and economists about whether interest rates and bond yields have reached their peak. While some believe that bond yields will continue to fall due to disappointing growth and lower-than-expected inflation, others argue that monetary policy will remain hawkish. As inflation persists above target and falling savings rates drive up real interest rates, there are concerns that the cost of available capital will increase.

Amidst these debates, it is essential to consider the factors that could influence bond yields going forward. Disappointing growth and lower-than-expected inflation could lead the Federal Reserve to cut rates sooner than expected, further affecting bond yields. On the other hand, inflation persisting above target and rising interest rates driven by falling savings rates could contribute to a strong anchor for U.S. 10-year bonds. Understanding these dynamics is crucial for investors and economists alike as they evaluate the future direction of bond markets.

Is UK Inflation still falling?

UK inflation has been a topic of interest for economists and policymakers, and recent data suggests a further slowdown in September. With the annual rate of price growth falling to 6.7 percent in August, the Bank of England decided to leave interest rates unchanged in September. However, the upcoming data release on UK inflation will provide further insights into the trajectory of inflation and its impact on the economy.

Analysts expect consumer price inflation to have fallen to 6.5 percent last month, with core inflation coming in at 6 percent. The easing of price pressures on food and clothing, combined with adjustments to private school fees and rising gas prices, are expected to contribute to the downward trend in inflation. However, it is essential to be mindful of potential upward risks, such as rising energy prices resulting from geopolitical tensions and disruptions to the gas pipeline.

Understanding the dynamics of UK inflation is critical for investors and policymakers as they assess the future path of interest rates and the overall economic outlook. Economic indicators, such as labor market data, will provide valuable insights into the pressures on domestic prices and the factors driving inflation.

How fast is the Chinese economy growing?

China’s economic growth has been a topic of concern for global markets, particularly given the ongoing uncertainty in the country’s economic outlook and foreign investor sentiments. The third-quarter gross domestic product (GDP) figures will shed light on the pace of Chinese economic growth in recent months.

Although the median forecast predicts growth of 4.5 percent year-on-year in the third quarter, it is important to consider this within the context of Beijing’s target of annual growth of “around 5 percent.” In addition to the GDP figures, other major data such as industrial production, retail sales, and capital investment will provide further insights into the state of the Chinese economy.

As Chinese banks prepare for interest rate announcements, there is anticipation that benchmark prime lending rates will remain unchanged. However, there is a possibility of a slight reduction in the one-year loan prime rate, which could potentially boost short-term liquidity in China’s banking system. These developments are crucial for market participants and investors as they assess the economic prospects of the world’s second-largest economy.

Summary

Keeping track of the bond market, UK inflation, and Chinese economic growth is essential for investors and policymakers alike. Recent developments, such as the rally in bonds and the slowdown in UK inflation, have sparked debates among experts about the future direction of these markets. While some believe that bond yields will continue to fall, driven by disappointing growth and lower-than-expected inflation, others argue that hawkish monetary policy and rising interest rates could anchor bond yields. In the case of UK inflation, the easing of price pressures and potential upward risks, such as rising energy prices, are important factors to consider. Similarly, understanding the pace of Chinese economic growth and its impact on global markets provides valuable insights for investors. By staying informed and analyzing these key areas, individuals can make more informed decisions about their investments and understand the broader economic landscape.

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