SNB: another expected cut
The SNB met today in what was the last monetary policy decision for President Thomas Jordan. Mr. Jordan has been in office since 2012, and his most high-profile decisions include abandoning the fixed exchange rate against the euro at 1.20 and the introduction of negative interest rates.
- The SNB reduced the policy rate by 25 bps to 1.0%
- The SNB remains ready to intervene in currency markets when and if needed
- The SNB now expects inflation to be at 1.2% this year, 0.6% next year and at 0.7% in 2026 • Swiss GDP growth is expected at 1.5% in 2025 • The SNB sees weaker momentum on mortgage and real estate than in previous years
Back to normal in bond markets
- After persisting for as long as two years in the US, the so-called inversion in yield curves is unwinding in many parts of the world
- The steepening, trend first surfaced in July in UK gilts, followed by US Treasuries a month later. Now it’s happening in Germany and Canada
- With inflation now appearing to be coming under control, policymakers can ease up and turn their attention to ensuring economic stability
- The US economy has so far avoided recession, although the labor market has slowed and recent figures showed slower business activity
- Also in Europe, the latest manufacturing numbers are hard to ignore, showing the recovery has run out of steam
Fed - Cut : What it Means
- Fed cuts 50bps to 5% on weakening labor market
- With inflation trending down, the Fed sees 200bps more in cuts by 2026; markets see 200bps by 2025
- Historically, whether equities rise or fall after rate cuts depends on if we enter a recession or not
- Cuts associated with soft landings historically saw the S&P500 gain 15% after 12 months; recessionary rate cuts saw stocks fall 15% in the next year
- Too soon to say we’ll get a soft landing (as the rates are still 200bps above the estimated neutral rate), but economy looks stable for now
China's Whatever it Takes Moment
PBoC unveiled massive monetary stimulus package in attempt to revive economy (5% growth target for 2024) – underscores mounting alarm over slowing growth and depressed investor confidence
- Seven-day reverse repurchase rate (China’s key interest rate) was lowered from 1.7% to 1.5% – Reserve requirement ratio and mortgage rates were also lowered
- 500 billion yuan of liquidity support for stocks was also announced
- New measures to encourage M&As will be revealed soon
- Stocks rose and yields fell (10 year below 2% for first time) on the news – analysts in general cautioned that it may not be enough to revitalize consumer spending
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