Currency Fluctuation Alarm in Japan, Cautious Rate Stance from BOE, Inflation Pressures in Russia: What’s Happening in Global Markets?
Today, as foreign investors show increased interest in U.S. assets, notable announcements regarding monetary policy from Japan and the UK have captured attention. Simultaneously, the recovery momentum of the Chinese economy and the high inflation pressures in Russia are influencing economic decisions, while the policies of the Reserve Bank of Australia and the U.S. Federal Reserve are being closely monitored.
Interest in U.S. assets increased in September According to data from the U.S. Treasury Department, foreign investors raised their interest in long-term U.S. securities in September. After purchases totaling $108.8 billion in August, this figure surged to $216.1 billion in September. Notably, demand for U.S. Treasury bonds was remarkable; following net purchases of $19.2 billion in August, net purchases in September amounted to $77 billion. During this period, total net capital inflow rose from $75.9 billion in August to $398.4 billion in September. Meanwhile, the amount of U.S. Treasury bonds held by China decreased from $775 billion to $772 billion.
U.S. labor market contributing to inflation Research from the San Francisco Federal Reserve indicates that tightness in the U.S. labor market continues to heighten inflationary pressures. Although demand reductions in 2022 and 2023 have somewhat moderated inflation, rising demand is contributing to inflation as of September 2024. These data may guide decisions regarding borrowing costs by the U.S. Federal Reserve.
Japan remains vigilant against currency fluctuations Japan's Finance Minister Katsunobu Kato stated that despite recent fluctuations in the yen, the government will maintain a cautious stance against excessive movements in the foreign exchange market. Kato emphasized that one-sided moves driven by speculators are viewed as a threat, and the government will continue to respond urgently to such situations. The minister also indicated that movements in the foreign exchange market are being closely monitored.
Bank of England anticipates cautious rate cuts Megan Greene, a member of the Bank of England's Monetary Policy Committee, stated that interest rates need to be gradually lowered. She pointed out that inflationary pressures in the country remain high, and inflation is not decreasing at the desired pace. Noting that wage increases are higher than expected, which is contributing to rising service sector inflation, Greene warned that sudden and aggressive rate cuts could risk the economy.
Bank of America signals expensive valuation in stocks Bank of America (BofA) indicated that the U.S. stock market has statistically become expensive, yet set a target of 6,000 for the S&P 500 index. Despite the limited upward movement in the S&P 500 index, the bank emphasized the potential for a shift towards cyclical and high-dividend yielding stocks. Additionally, BofA noted that the index is being supported by higher-quality and less leveraged assets compared to previous years.
Inflation pressures continue in Russia The Central Bank of Russia reported that inflationary pressures remain high. Households' inflation expectations for the future remain steady at 13.4%. The Central Bank, which raised the benchmark interest rate to 21% last month, stated this move was a response to high inflation and expectations. While some signs of a slowdown in inflation were noted in October, it was explained that this decline is due to temporary factors. The bank mentioned that tightening monetary policy further may be evaluated at the meeting scheduled for December.
UBS forecasts for the Chinese economy in 2025-2026 UBS economist Tao Wang stated that the measures taken by China to stimulate domestic demand will partially counterbalance the customs duties that the U.S. may impose on Chinese exports. It was indicated that a potential tariff shock could support household consumption and trigger structural reforms. The Chinese economy is projected to grow by 4% in 2025 and 3% in 2026, with net exports expected to create pressure in 2026.
Chinese economy on a recovery trend Li Chao, spokesperson for the National Development and Reform Commission of China, announced that the country's economy will maintain its recovery momentum towards the end of the year. Chao noted that China's broad set of policy tools continues to be effective, highlighting that they have a wide range of options to support economic recovery.
Australia sees no need for interest rate changes The Reserve Bank of Australia (RBA) expressed that there is no urgent need to change interest rates during its November meeting. RBA board members emphasized the importance of maintaining monetary policy at a sufficiently restrictive level. They stated that upcoming changes will remain flexible and that they are closely monitoring inflation as it progresses towards the target.