Global markets are reacting to a shift in expectations for Federal Reserve interest rate cuts, with traders now anticipating fewer cuts than previously expected. This change has implications for central banks worldwide, with the Reserve Bank of Australia now expected to make only one rate cut instead of two. The higher U.S. rates outlook may also limit easing from central banks in emerging markets. Meanwhile, Japanese stocks are approaching their 1989 peak, and Indonesians are voting for the country's next leader. Key market-influencing events today include UK inflation figures and Euro zone GDP flash estimates.
Stock futures fell as global central bank officials tried to temper expectations about interest-rate cuts in 2024, with slowing economic growth in China also impacting sentiment.
The Bank of Japan (BOJ) has decided to maintain its ultra-easy monetary policy despite stronger-than-expected inflation, signalling it will remain a dovish outlier among global central banks and focus on supporting a fragile economic recovery. The BOJ's decision contrasts sharply with that of the European Central Bank, which raised borrowing costs to a 22-year high on Thursday and signalled the likelihood of further hikes. The BOJ maintained its -0.1% short-term interest rate target and a 0% cap on the 10-year bond yield set under its yield curve control (YCC) policy.
The dollar's status as the world's dominant currency is under scrutiny due to rivalry with China, fallout from Russia's war in Ukraine, and wrangling in Washington over the US debt ceiling. The dollar share of official FX reserves fell to a 20-year low of 58% in Q4 2022, according to IMF data. However, de-dollarisation would require a vast and complex network of exporters, importers, currency traders, debt issuers, and lenders to independently decide to use other currencies, making it unlikely. While there may not be a single dollar successor, mushrooming alternatives could create a multipolar world. The dollar's status is underpinned by the $23 trillion US Treasury market, viewed as a safe haven for money.
The Federal Reserve and other major global central banks have announced that they will enhance swap operations to ensure that dollars remain readily available across the global financial system as bank blowups in America and banking issues in Europe create a strain. The move is aimed at preventing tumultuous conditions in markets as jittery investors react to the blowups of Silicon Valley Bank and Signature Bank in the United States and the arranged takeover of Credit Suisse by UBS in Europe. The move was part of the Fed’s ongoing push to shore up stability in the global financial system.
