Central banks across the globe cut interest rates today and it is impacting markets everywhere.
Central Banks Across The Globe Cut Rates
December 11 (King World News) – Peter Boockvar: … a bunch of central bank actions have taken place and rather than wait until there is evidence that inflation will stay down on a sustainable basis, a few are trying to catch that falling inflation knife. But not all. I say ‘not all’ because the Brazilian central bank hiked rates by 100 bps last night and said expect another 200 bps to come.
… The ECB cut to 3%, by 25 bps as expected and Lagarde is speaking right now. She’s still acknowledging sticky service inflation in part due to higher wages but believes policy is still restrictive. She said they “are not pre-commmitting to a particular rate path.”
From the Bank of Canada yesterday giving reason for their 50 bps rate cut to 3.25%, “With inflation around 2%, the economy is in excess supply, and recent indicators tilted towards softer growth than projected.” Going forward its next move won’t be as obvious as “we will be evaluating the need for further reductions in the policy rate one decision at a time. Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook.” The BoC also laid out the big risk out there, tariffs. Risk of course if they happen but even risk if there are just threats of them. “No one knows how this will play out in the months ahead – whether tariffs will be imposed, whether exemptions get agreed, or whether retaliatory measures will be put in place. This is a major new uncertainty.”
As the policy rate calibration from here is a bit cloudier than what’s been seen in Canada, the Canadian$ is up for a 2nd day, though very slightly. The 2 yr yield was up by 5 bps yesterday but still well off its levels of a few weeks ago.
The Swiss National Bank is giving themselves absolutely no room for maneuver if there are any economic surprises to the downside as they surprisingly cut its benchmark rate by 50 bps to .50%. As I hope I NEVER see negative interest rates again, it’s bizarre to me that the SNB is playing this game again around zero rates. To the possibility of NIRP, Governor Schlegel said he doesn’t like NIRP but would not exclude the possibility of them again. He said “With our easing of monetary policy today we are countering the lower inflationary pressure.” He also threatened the use of FX intervention in order to stem further Swiss Franc gains of substance.
The Swiss Franc is lower in response but not by much. Versus the dollar, its exchange rate is pretty much in the middle of its one year range but is at record high vs the euro and what the SNB is seemingly trying to push back against, to no avail so far.
On the dovish flip side is the hawkish Brazilian central bank which hiked its Selic rate by 100 bps yesterday to 12.25%. They said “In light of a more adverse scenario for inflation convergence, the Committee anticipates further adjustments of the same magnitude in the next two meetings, if the scenario evolves as expected.” For perspective, their inflation goal is 3% and no higher than 4.5% and it is currently running at 4.87% in November. When it comes to fighting inflation, they don’t mess around. They said the Selic rate could get to 14.25% by March.
With respect to inflation in the other key South American country, Argentinian president Javier Milei has worked wonders so far via massive spending cuts. Argentina said yesterday that its November CPI, while running still red hot, continues to decelerate, rising by 2.4% m/o/m, its slowest monthly gain since July 2020.
This is still a hyperinflationary situation at 166% y/o/y but that is down from 289% in April.
I continue to cheer on Javier Milei for his grand moves to get Argentina out of its socialist morass.
Gold & Silver: Remain Patient
King World News note: The US Dollar Index has responded by surging back above the 107 level, closing in on a recent high. Although the metals had been trading with the dollar, gold and silver are under pressure today as they continue to consolidate big gains from this year. Long term, the gold and silver markets will respond by heading higher as inflation accelerates and we continue to see a 1970s-style stagflation continue to choke the world economy, particularly the US. Investors need to remain patient.
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