Charts of the Week: Up, Down, and Somewhere in Between

US interest rate expectations Following this week’s US FOMC meeting, investors are still anticipating roughly three interest rate cuts of 25 basis points by the end of this year (see chart 1). That’s much less than the six such rate cuts that were being priced in mid-January. But it does mean that investors are now more in sync with the Fed’s projections that were published in January and subsequently little-changed at the meeting this week.

The Bank of Japan The key headlines from this week’s BoJ meeting concerned its exit from a negative interest rate policy. But there were nuances. For example, the accompanying decision to exit the so-called Yield Curve Control policy arguably sent a strong signal about the BoJ’s tightening intentions. That said, the yen weakened and government bond yields (JGBs) dipped following these communications (see chart 1). This could reflect the combination of a widely-telegraphed decision in the Japanese media last weekend. Governor Ueda's hint at gradual future rate hikes may have additionally eased investor concerns.

Inflation in the UK and Canada Inflation watching remains in vogue at present given the importance of these data points for central banks’ decision making. On that score, it was notable this week that much of the incoming inflation data that were published in several major economies surprised expectations to the downside. CPI releases from Canada, the UK and Denmark, for example, all revealed a sharp drop in headline and core inflation (see chart 3). This stands in contrast to last week’s US inflation data, which revealed an uncomfortable message about the trajectory of core inflation and equally surprised the consensus on the upside.

Emerging market growth surprises Possibly in part because the global inflation and interest rate cycle are turning, incoming data for global growth have taken a turn for the better over the past few weeks. Economic activity in emerging markets, in particular, appears to have improved according to Citigroup’s growth surprise index. Sentix surveys equally suggest that a cyclical improvement is underway in Asia (see chart 4) as well as in Latin America.

China’s credit growth It is possible too, however, that an improvement in China’s economy could have contributed to these regional and broader emerging market positives. This week’s dataflow from China for industrial production and fixed asset investment certainly registered unexpected improvements in January and February. Haver’s calculations for China’s credit impulse equally suggest that a broader uplift in the domestic economy might now have commenced (see chart 5).

Equity market flows Notwithstanding disappointing growth over the past few months, China is notable for having attracted large positive equity market inflows in 2023, according to data from EPFR (see chart 6). In fact, Asia, as a whole became a focal point for equity investors last year, with India and Japan also attracting substantial investment. This trend contrasts with several other major economies, including the US, which experienced notable equity market outflows.