Market Overview

Global Central Banks Aren't Fooling Anyone: Doves In Hawk Clothing


By Bob Iaccino

The following originally appeared on Nadex

This was one heck of a central bank week. Starting on Tuesday we had official meetings of the U.S. FOMC, the European Central Bank (ECB), the Bank of England (BOE), the Swiss National Bank (SNB), and the Norges Bank (Central Bank of Norway). This was a filling buffet for hungry Fed watchers and they did not disappoint in that they said virtually nothing new to upset the stomach of the markets. Given the current state of global economies, central bankers want to be hawkish. They want their respective economies to be strong, they want to reach their inflation targets and they want to normalize interest rates. But they run the risk of trigger recessions and they want to avoid this most of all. Let's go down the list and find the doves.

The U.S. FOMC and Janet Yellen began the week by hiking rates 25 basis points, the fourth rate hike in this cycle, and left its rate outlook for the coming years unchanged even as policymakers projected a short-term acceleration in U.S. economic growth. Isn't that being hawkish? Well, if it is the U.S. 10-year note wasn't listening. Since Wednesday morning, yields have fallen from 2.461% to a post-announcement low of 2.346% late Thursday night. In her press conference, Janet Yellen continued to assert that the low inflation (which we saw on display again in the CPI figures released Wednesday morning) are transitory. They want to reach their inflation targets.

This continued with the ECB and Mario Draghi describing how while the EU economy was currently stronger than the U.S, The U.S. was farther along in the economic cycle. The ECB was therefore justified in being cautious. They want to be their economies to be strong. This theme continued with the SNB. The Swiss National Bank said inflation will breach its goal in late 2020 thanks to the franc’s depreciation, but argued even talking about normalizing policy would be premature, but argued that they would intervene directly in the currency if they felt it was necessary. Norway's central bank, Norges Bank, decided to keep interest rates unchanged at 0.5%. In their statement, they wrote, "There is a continued need for an expansionary monetary policy. Interest rates abroad are low. There is still some spare capacity in the Norwegian economy. The outlook suggests that inflation will remain below 2.5% in the coming years," but the bank also said that it expects to raise rates “somewhat earlier” than it had expected in September. They want to normalize interest rates.

Lastly, the Bank of England said its monetary policy committee voted unanimously to maintain interest rates at 0.5%. UK inflation is at it's highest rate of growth in 2 1/2 years, but it's been driven by weak currency rather than economic strength. BOE Governor Mark Carney stated they are focused on protecting a fragile U.K. economy amid much uncertainty regarding Brexit.

They all want the same thing, but global treasury yields have moved lower which means the market doesn't believe they can get what they want. They are all doves and these doves in hawks clothing aren't fooling anyone.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributorsNews Eurozone Futures Treasuries Federal Reserve Markets


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