Central Banks Increase Rates as Economies Weaken and Inflation Persists

The Senior Loan Officer Opinion Survey (SLOOS) has indicated a decline in the economy in recent quarters. The latest survey revealed widespread demand deterioration and tighter credit standards across all loan types in the last three months of 2022.[0] The decrease in credit standards is a sign of the broader repercussions of tight monetary policy beginning to be felt.[0] Recent quarters have seen an intensification of demand declines for many of the lending types documented in the SLOOS data.

It is expected that the consumer price index increased by 0.5% in January, with the year-ago rate decreasing from 6.5% in December to 6.4%. It is anticipated by economists that the headline inflation will increase by 0.5% in January after dropping by 0.1% in December.

Disney DIS, coming in on its 100 year anniversary, announced 7,000 jobs being cut, and $5.5 billion in cost cutting.[1] Bob Iger, recently reappointed as CEO, has taken control and set a new direction for the DIS organization.[2] In the future, Disney is restructuring and prioritizing generating revenue from its streaming services.[2] Nelson Peltz, an activist investor, decided to stop his proxy battle in support of the Disney CEO Bob Iger and his decisions, resulting in a $150 million profit for Peltz.[2]

The Bank of England has considered the likelihood that the 50bp rate increase in February might have been the final one.[3] It is anticipated that there will be an additional 25 basis point rate increase in March; however, the data next week will be crucial. The key words here are “inflation persistence”, which is what BOE officials have said they’re monitoring.[3] This week’s inflation and jobs data from the United Kingdom will be used by the Bank of England to decide if they should raise interest rates once more in March.[4]

This week, global central banks implemented another round of rate increases.[0] The Reserve Bank of Australia (RBA) initiated a 25 basis point increase in their policy rate, bringing it to a total of 3.35%.[5] Due to the hawkish commentary, it is anticipated that the RBA will increase the rate by 25 basis points in both March and April. The central bank of Sweden raised interest rates by 50 basis points and indicated that it will raise them even more in the spring. Additionally, it stated that it will begin selling bonds to reduce the size of its balance sheet at a quicker rate.[0]

0. “Weekly Economic & Financial Commentary: International Central Banks Deliver Another Round of Rate Hikes” Action Forex, 11 Feb. 2023, https://www.actionforex.com/contributors/fundamental-analysis/485872-weekly-economic-financial-commentary-international-central-banks-deliver-another-round-of-rate-hikes/

1. “3 takeaways from a busy week in markets: Morning Brief” AOL, 11 Feb. 2023, https://www.aol.com/finance/3-takeaways-busy-week-markets-110001679.html

2. “Week Ahead: Inflation Data, Interest Rates, and Time to Buy Shopify Breakout?” Yahoo! Voices, 13 Feb. 2023, https://www.yahoo.com/now/week-ahead-inflation-data-interest-204008296.html

3. “Key Events In Developed Markets Next Week” MENAFN.COM, 10 Feb. 2023, https://menafn.com/1105556757/Key-Events-In-Developed-Markets-Next-Week

4. “Top 5 things to watch in markets in the week ahead By Investing.com” Investing.com, 12 Feb. 2023, https://www.investing.com/news/economy/top-5-things-to-watch-in-markets-in-the-week-ahead-3001221

5. “Markets to Watch This Week: Fed, ECB and BoE Speakers to Drive Markets” Macrohive, 6 Feb. 2023, https://macrohive.com/hive-exclusives/markets-to-watch-this-week-fed-ecb-and-boe-speakers-to-drive-markets/