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‘Economic Discontent’ Is On The Rise As Central-Bank-Nado Strikes Markets Overnight

‘Economic Discontent’ Is On The Rise As Central-Bank-Nado Strikes Markets Overnight

A herd of wild central banks stormed across markets overnight…

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This article was originally published by Zero Hedge

‘Economic Discontent’ Is On The Rise As Central-Bank-Nado Strikes Markets Overnight

A herd of wild central banks stormed across markets overnight – following The Fed’s uber-hawkish 75bps hike and dot-plot projections – sparking chaotic swings in everything from Yen to Gilts. Everyone hiked or held rates… except Turkey which cut!


  • BoJ kept its monetary policy unchanged, as expected, with rates at -0.10% and QQE with yield curve control maintained to target the 10yr JGB yield at around 0% through a unanimous decision.

  • Japanese Government and BoJ intervened in FX markets for the first time since 1998, according to the Japanese Vice Finance Minister – the government and the BoJ stepped into the market to buy JPY for USD.


  • SNB hikes its Policy Rate by 75bps to 0.5% as expected; willing to be active in FX market as necessary; further rate hikes cannot be ruled out; no CHF classification in release.

  • SNB Chair Jordan says SNB ready to intervene to prevent excessive weakening or strengthening of the CHF; recent appreciation has helped dampen inflation. If there were to be an excessive appreciation of the Swiss franc, we would purchase foreign currency. If the Swiss franc were to weaken, however, we would consider selling foreign currency.


  • Norges hikes its Key Policy Rate by 50bps as expected to 2.25%; policy rate will most likely be raised further in November; This may suggest a more gradual approach to policy rate setting ahead.

  • Norges Bank Governor Bache says the central bank is likely to hike by 25bps in November.


  • The Bank of England hiked rates a softer-than-markets-expected 50bps (in 5-3-1 50-75-25bps split decision) while warning about the potential inflationary impact of PM Truss’ new fiscal plans.

  • MPC also confirmed the start of QT – active-selling of gilts will begin in October.


  • While no decisions from the ECB today, it is worth noting that ECB’s Schnabel says we must increase interest rates further, “I assume that the ECB Governing Council will hike interest rates further at its next meeting. At the moment, I cannot say how large this interest rate hike will be and up to what level we will”. In the short-term inflation could increase further, despite rate hikes. We do not currently see any indications of a wage-price spiral; wage growth has increased, but is still moderate


  • Brazil Central Bank maintained the Selic Rate at 13.75% as expected via unanimous decision, while it will assess if the prospect of holding the Selic Rate long enough will ensure inflation convergence and stated that future policy steps could be adjusted. Furthermore, it will remain vigilant and will not hesitate to resume the cycle of rate adjustments if disinflation does not happen as expected.

Hong Kong

  • Hong Kong Monetary Authority raised the base rate by 75bps to 3.50%, as expected.

Rest of Asia

  • Bank of Taiwan, Bank of Indonesia, and Bank of Philippines all raised rates in-line with expectations.


  • Turkey’s central bank delivered another shock cut to interest rates, despite inflation running at a 24-year high and with the lira trading at a record low.

  • The Monetary Policy Committee led by Governor Sahap Kavcioglu lowered the benchmark to 12% from 13% on Thursday. In a statement accompanying its decision, the central bank said there was a “loss of momentum in economic activity.”

Amid all that chaos, here are some of the main moves in markets:


  • Futures on the S&P 500 were little changed as of 7:54 a.m. New York time
  • Futures on the Nasdaq 100 fell 0.2%
  • Futures on the Dow Jones Industrial Average were little changed
  • The Stoxx Europe 600 fell 1.1%
  • The MSCI World index fell 0.2%


  • The Bloomberg Dollar Spot Index fell 0.2%
  • The euro rose 0.3% to $0.9864
  • The British pound rose 0.3% to $1.1304
  • The Japanese yen rose 1.7% to 141.59 per dollar


  • The yield on 10-year Treasuries advanced two basis points to 3.55%
  • Germany’s 10-year yield was little changed at 1.89%
  • Britain’s 10-year yield advanced 11 basis points to 3.42%


  • West Texas Intermediate crude rose 1.5% to $84.22 a barrel
  • Gold futures rose 0.2% to $1,678.50 an ounce

TOP OVERNIGHT NEWS (via Bloomberg):

  • Powell Signals Recession May Be the Price for Crushing Inflation
  • Stock Bulls Reluctantly Fold on the Fed’s Grim Economic Message
  • Traders Ramp Up BOE, ECB Rate Hike Bets After Hawkish Fed
  • Gold Risks Collapse Into Bear Market as Fed Targets Inflation
  • Bond Market Pushes Recession Trades as Fed Hawks Take Flight
  • Goldman Lifts Forecasts for Fed Hikes on Powell’s Hawkish Signal
  • Japan Intervenes in Market After BOJ Defiance Sends Yen Sliding
  • BOJ Curve-Control Policy Bolstered as US Yields Fall After Fed
  • Deutsche Bank CFO Says on Track for Top End of Revenue Guidance
  • Credit Suisse Mulls Plan to Resurrect ‘Bad Bank,’ FT Reports
  • Wall Street CEOs Grilled on China, Russia Ties by US Lawmakers
  • Citi Mulls N.J., Connecticut Facilities to Ease NYC Commutes
  • Porsche’s Gray Market Trading Points to Bumper Debut Next Week
  • Bankman-Fried’s FTX Is in Talks to Raise $1 Billion, Says CNBC
  • Dimon Calls Out Crypto as ‘Decentralized Ponzi Schemes’
  • Bitcoin Pares Drop Sparked by Fed’s Warning of Rate-Hike Pain
  • Intel Executive With Industry’s Toughest Job Plots Comeback
  • Kittyhawk, Larry Page’s Flying-Car Company, Will Shut Down
  • Ukraine Seizes Dozens of Russian Tanks Left by Fleeing Forces
  • Suns Owner Sarver Set to Sell Teams Amid Harassment Scandal
  • Trump-Picked World Bank Boss Faces Calls for Ouster Over Climate
  • House Votes to Raise Bar for Challenging Presidential Elections


  • 08:30: Sept. Continuing Claims, est. 1.42m, prior 1.4m
  • 08:30: 2Q Current Account Balance, est. -$260b, prior -$291.4b
  • 08:30: Sept. Initial Jobless Claims, est. 217,000, prior 213,000
  • 10:00: Aug. Leading Index, est. -0.1%, prior -0.4%
  • 11:00: Sept. Kansas City Fed Manf. Activity, est. 5, prior 3

Rabobank’s Michael Every concludes the overnight wrap:

Anxiety about the geopolitical risks overshadowed markets’ concerns about soaring inflation yesterday as Putin ‘doubled down’. In a television address to the Russian nation, he declared a ‘partial’ mobilization of 300,000 reservists. However, markets’ worries about the Russian President’s latest escalation pales in comparison to the anxiety amongst those whose lives it affects directly and dramatically. As the pundits pointed out, the official text of the decree does not specify an end date, nor an actual number of reservists to be called up. In fact, it’s a broad and open-ended statement that leaves any decision on quantities to top brass and regional military leadership. So the 300,000 is, well, just a number.

Google trends reveals that Russians flocked to the search engine to search for ways to avoid being called on in this act of mobilization. Fleeing the country was clearly the top tip, as evidenced by a surge in search queries that included any combination of airline tickets, visa, and specific destinations. Even the desperate question “where to flee to?” was increasingly being Googled, after the Moscow Times reported that “nearly all flights to available foreign destinations were sold out” almost immediately after the announcement. When the option of leaving the country seemed exhausted, people turned to more drastic ways to avoid being sent to the battlefield. “searches for ‘how to break an arm’ surged in russia today. anything to get out of combat…,” summarized Eurasia’s Ian Bremmer. That reaction illustrates why the Kremlin had resisted drawing upon such mobilization so far.

Some –including German Chancellor Scholz– are calling Putin’s move an act of desperation as he realizes that “Russia cannot win this criminal war.” However, even if this is true, it’s hardly a positive for risk sentiment. After all, Putin has also swept the rug from under those who were starting to believe that Russia was looking for an exit after China and India also increased pressure on Putin to de-escalate – at least, that was how many had interpreted Putin’s comments after meeting with Xi and Modi. And even if these new forces are only to be deployed in the Luhansk and Donetsk regions to prevent Ukraine from taking back these territories, it also raises the risk that the West gets dragged into the fight, as Russia would see an attack on these regions as an attack on its own sovereignty – especially after these regions ‘vote’ for annexation in the referendums that will be held this weekend.

Of course we could consider all this sabre-rattling and shift in focus from ‘fighting Ukraine’ towards the ‘fight against the West’ as specifically aimed at a domestic audience. The ‘partial’ mobilization decision has to be explained after all. But the sabre-rattling (with Sergei Markov, one of Putin’s ‘close advisors’ again warning on BBC radio yesterday that Russia is willing to use its nuclear arsenal against Western countries if it feels threatened) is also a signal that Putin is willing to play a game of attrition in which he hopes to drive a wedge into the Western coalition countries.

Playing into political disruption is the key weapon, as economic discontent –a result of the energy crisis– is on the rise. Giorgia Meloni, leading a coalition of radical right and more moderate factions, may soon take over the helm from Italian PM Draghi. In Sweden the far-right Sweden Democrats came in second in this month’s election and yesterday 5,000 protesters took to the streets in Slovakia to express anger about the economic impact of the war. Governments are taking measures to soften the cost of living crisis, but the medium-term consequences of these interventions on inflation could well be ‘higher for longer’.

Given the abovementioned backdrop the market’s reaction yesterday was actually rather modest. 10y yields in Europe fell around 6 basis points across the board, but partly recovered from that in the afternoon session. European stocks even managed to return into positive territory following a weak opening. This turn of sentiment was supported by a fall in energy commodity prices. In early trading the nearest futures for both Brent and gasoil (diesel) were both up around 3%, the Dutch TTF 1m forward gas jumped 5% higher, but all these gains evaporated and turned into small losses by the end of the day. The only constant in yesterday’s trading session was the stronger dollar, with the DXY dollar index up 0.6%, reaching its highest level in 10 years’ time. Concerns about the possibility of a 100bp hike by the Fed overshadowed those early on the day geopolitical sentiments. 2y UST yields pierced the 4% threshold for the first time since 2007.

At the end of the day, the Fed stuck with 75bp instead of surprising with a 100bp hike. Yet, there were some hawkish take-aways from yesterday’s FOMC meeting and this is also leading to further weakening of non-USD currencies in the aftermath of that. First of all, Powell reiterated the message that the Fed is strongly committed to reduce inflation back to target, and that the FOMC is purposefully moving its policy rates to a level where they are sufficiently restrictive.

Secondly, FOMC members indicated that they now expect the federal funds rate at 4.4% by year-end and that they see a terminal rate of 4.6% next year. That is a significant upward shift in the dot plot. The median member expects another 125bp in hikes this year, i.e., in line with our expectations of 75bp in November and 50 in December, but a large group in the Committee expects to hike by only 100bp. Moreover, though, the 4.6% terminal rate that the FOMC anticipates falls short of our prediction of 5%. As our US strategist explains, the main reason why our rates call remains above consensus and above the Fed’s own expectations is that we believe that a wage-price spiral has started in the US that will keep inflation persistent. The FOMC may not fully acknowledge this yet, but they have made it very clear that they will prioritize inflation and Powell is increasingly preparing the market for a not-so-soft economic landing. That intricate balance between higher for longer inflation and Fed rates combined with more economic pain ahead is reflected in a further flattening of the yield curve; 30y yields shed 7bp as a result.

Tyler Durden
Thu, 09/22/2022 – 08:13

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