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China’s deflation a near-term positive for Western central banks - PIMCO
Deflationary pressures in China could spill over into global markets, which is potentially near-term good news for Western central banks as they seek to curb inflation, U.S. asset manager PIMCO said on Wednesday. China's consumer sector fell into deflation and factory-gate prices extended declines in July, as the world's second-largest economy struggled to revive demand and a flurry of policies to support the economy failed to shore up activity. The economic deterioration could moderate inflation in China and, increasingly, also in the markets served by Chinese goods, PIMCO Economist and Managing Director Tiffany ... (full story)
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The manager turned first to a review of developments in financial markets over the intermeeting period. Market participants interpreted data releases as generally demonstrating economic resilience and a further easing of inflation pressures. The market-implied peak for the federal funds rate rose in response to data pointing to a robust economy but retraced part of that move after the June consumer price index (CPI) release was interpreted by market participants as softer than anticipated. Even as market prices shifted to indicate a slightly more restrictive expected policy path, broader financial conditions eased a bit, reflecting in large part gains in equity prices and tighter credit spreads. Notably, share prices for bank equity also appreciated over the intermeeting period as concerns about the banking sector continued to dissipate. Spot and forward measures of inflation compensation based on Treasury Inflation-Protected Securities were little changed over the intermeeting period at levels broadly consistent with the Committee's 2 percent longer-run goal, and longer-term survey- and market-based measures continued to point to inflation expectations being firmly anchored. Market-implied peak policy rates in most advanced foreign economies (AFEs) rose further this period, and the dollar depreciated modestly. Respondents to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants in July continued to place significant probability of a recession occurring by the end of 2024. However, the timing of a recession expected by survey respondents was again pushed later, and the probability of avoiding a recession through 2024 grew noticeably. Survey respondents anticipated that both headline and core personal consumption expenditures (PCE) inflation will decline to 2 percent by the end of 2025. There was a strong anticipation, evident in both market-based measures and responses to the Desk's surveys, that the Committee would raise the target range 25 basis points at the July FOMC meeting. Most survey respondents had a modal expectation that a July rate hike would be the las post: *TWO FED OFFICIALS FAVORED HOLDING RATES STEADY IN JULY *MOST FED OFFICIALS SAW 'SIGNIFICANT' UPSIDE RISKS TO INFLATION *FED MINUTES: INFLATION RISKS COULD REQUIRE FURTHER TIGHTENING post: FOMC: Officials Will Judge Next Rate Decisions On 'Totality' of Data on Economy and Inflation post: FED MINUTES: PARTICIPANTS SAID INFLATION WAS UNACCEPTABLY HIGH, MORE EVIDENCE NEEDED TO BE CONFIDENT PRICE PRESSURES WERE EBBING. post: FED MINUTES: A NUMBER OF PARTICIPANTS WARNED OF RISKS OF ACCIDENTALLY TIGHTENING POLICY TOO MUCH.
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- Posted: Aug 16, 2023 12:10pm
- Submitted by:Category: Fundamental AnalysisComments: 0 / Views: 2,776