- US: Labour market still tight amid considerable momentum for demand, we expect a recalibration of Fed policy as economic conditions stay broadly firm
- Hong Kong: Targeted support with HK budget given critical role as a key channel for capital flow and asset management, RMB internationalisation, US-China decoupling, and stabilising labour force; it is too early for a secular downgrade
- Japan: Real growth slowing due to diminishing reopening demand amid stagnant export volumes while robust corporate profits suggest potential for wage increases; BOJ likely to terminate NIRP during the April meeting
Related insights_tr
US: Fed’s rate outlook recalibration. The narrative around Fed policy has generally been around the magnitude of easing, but we believe the path is just as important. Since the start of the year, the market has oscillated between pricing in three to six cuts. Pricing is currently on the more hawkish end (about three cuts this year) as the market digests a string of firm US data and consistent Fed pushback against cutting rates too soon.
There are broadly two types of easing cycles to be aware of. First, an aggressive easing cycle due to an economic crisis like the Global Financial Crisis of 2008/09. At that point, faced with multiple bank failures and a rapidly weakening labour market, the Fed cut rates by about 500 bps and embarked on quantitative easing (QE). The Fed’s reaction to the pandemic in 2020 was similar. However, given that rates are much lower at the start of 2020, the Fed had limited room to cut rates before hitting the zero bound. Instead, a much heavier dose of QE was used.
Second, a recalibration of Fed policy as economic conditions stay broadly firm. The Fed cycle in the 1990s is an example of this. Rate cuts were shallow, there were extended pauses and even a rate hike in between long pauses. This type of easing cycle is much more difficult to predict with certainty as the Fed’s path will be messier. The current mix of firm data and cooling inflation (albeit sticky around 3%) suggest that the upcoming cycle may more closely resemble the latter.
Interest rate futures align with the Fed’s projection for three rate cuts in 2024. Despite this, Fed Governors Christopher Waller and Michelle Bowman saw no urgency to cut interest rates. Kansas Fed President Jeffrey Schmid explained that the labour market was still tight amid considerable momentum for demand, for the Fed to be sure about inflation returning sustainably to the 2% target. We pay attention to the prices paid index in the ISM manufacturing PMI survey released later today, where consensus sees increasing to 53.2 in February after the rebound to 52.9 in January from 45.2 a month earlier.
Positive business outlook, resilient consumer sentiment. In February, the US Conference Board’s consumer confidence index experienced a decline, dropping to 106.7 from January’s 110.9. Despite this fall, the present situation index maintained a strong position at 147.2, while expectations hovered just below 80. Looking ahead over the next six months, more respondents anticipate increases over decreases in their incomes and the stock markets, driven by a positive business outlook. Although fewer job opportunities were expected, a significant 67.7% of respondents envisioned job availability to remain steady, marking the highest level of job stability optimism since February 2020.
Download the PDF to read the full report which includes coverage on Credit, FX, Rates, and Thematics.
Topic
The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.
The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.
The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.
DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.
To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.
The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.