Haver Analytics
Haver Analytics

Economy in Brief

  • In this week's letter, we delve into the recent wave of rate decisions enacted by central banks across the region. We begin by examining the Bank of Japan’s (BoJ) latest policy shifts, highlighting its significant move to terminate its negative interest rate policy. We then explore financial market responses to the BoJ’s decision, discussing possible drivers behind the subsequent weakness of the yen and declines in Japanese government bond (JGB) yields. We move next to review interest rate developments in China, where loan prime rates (LPR) were left unchanged. We then shift our focus to the economies of Australia and New Zealand, where we examine the change in messaging by the Reserve Bank of Australia (RBA) and disappointing Q4 GDP results in New Zealand. Finally, we wrap up the week’s letter with a nod to interest rate decisions in Taiwan and Indonesia.

    Recent events speak to the varied stages of monetary policy implemented by central banks in the region, given respective domestic considerations. China continues to pursue an easing approach with economic stabilization looking only nascent, whereas Japan has only recently initiated policy tightening due to encouraging wage growth. Australia and New Zealand, having seemingly completed their tightening cycles, now face increasing pressures to consider easing moves given recent weak economic readings, although with inflation a persisting concern.

    Policy shifts by the Bank of Japan Recent headlines have shed light on some subtle yet significant aspects of the Bank of Japan’s (BoJ) departure from its negative interest rate policy. In a notable shift, the BoJ has now set its sights on targeting the uncollateralized overnight call rate to lie between 0% and 0.1% (chart 1). This objective will be accomplished by imposing an interest rate of 0.1% on the current account balances that financial institutions maintain with the bank, starting March 21. Previously, the BoJ aimed at a rate of -0.1% on financial institutions' Policy-Rate Balances. Governor Ueda highlighted that this move signifies the bank's return to a "normal" monetary policy that focuses on short-term interest rates, aligning with practices of other central banks. Additionally, the BoJ has terminated its Yield Curve Control (YCC) policy and announced the cessation of its purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). Furthermore, the bank intends to gradually conclude its buying of commercial paper and corporate bonds over the coming year.

    • Crude oil prices reach four-month high.
    • Gain in metals price paced by zinc.
    • Rubber & lumber costs continue to rise.
    • Textile prices decline.
  • The German IFO survey made some significant improvements in March compared to February. The all-sector climate reading grows to -16.1 in March from -23.5 in February. The current conditions index registered a positive 0.6 reading in March after a -1.9 rating in February. The expectations index rose to -16.4 in March from -23.0 in February.

    There are some substantial changes and improvements in the month-to-month readings; however, make no mistake about it, the IFO remains very weak. The climate reading, for example, has a rank standing in March at its 19.1 percentile compared to a ranking in at the 6.5 percentile in February. The all-sector current conditions ranking moves up to 13.9 percentile in March from the 11.7 percentile in February. All-sector expectations move up to the 13.4 percentile from the 3.9 percentile in February. These are substantial and significant moves in the month-to-month rankings and for the month-to-month diffusion readings; however, the current readings are still weak. In terms of the values reported last month, the current readings aren't really going to be pointing to an economy that's substantially changed from the readings that we saw a month ago.

    However, what's new and what's interesting is there is a month-to-month improvement and it's the first one of some significant value that we've seen in some time and that could mark a turning point. The change is most substantial for expectations, which is also a relatively volatile category and something to keep an eye on. But it's the fact of having an improvement after such a long period of conditions remaining weak that is both impressive and hopeful.

    Looking at the various sectors in climate section, construction has the strongest ranking in its 25th percentile - a bottom quartile ranking.

    Under current conditions, retail and construction have above-50 percentile standings- above their historic medians. The service sector has the weakest stand-alone ranking in its 15.6 percentile.

    Expectations readings show a still-weak 0.8 percentile standing for construction, just off the all-time low made last month. The service sector, with a 15.1 percentile standing, is the strongest ranking sector in expectations.

  • The decisions from several central banks this week have, on the whole, amplified hopes that the world economy remains on course for a soft landing. Equity investors were certainly reassured by the absence of big changes to the Fed's interest rate outlook, despite some concerns following last week’s US inflation surprises. This week’s unexpected decision by the Swiss National Bank (SNB) to cut interest rates by 25bps, in the meantime, chimed with the idea that a global easing cycle has now commenced. In the other direction, moreover, the Bank of Japan’s cautious move toward policy normalization met with a muted financial market response, possibly because it was softened by some dovish communications. In our charts this week we assess some of these financial market reactions (in charts 1 and 2), we review recent global inflation trends (in chart 3), and we then examine China's credit growth (chart 4), and its possible impact on other Asian economies (in chart 5). Finally, we assess 2023's equity market inflows in a selection of major economies, as a prelude to a forthcoming webinar with EPFR.

    • Sales rise to twelve-month high.
    • Home prices edge higher after seven straight monthly declines.
    • Sales increase across the country, except Northeast.
    • February LEI increases marginally following 23 straight m/m declines.
    • Coincident Economic Index up for the seventh time in eight months.
    • Lagging Economic Index up for the fourth time in five months.
    • Headline index fell but unexpectedly remained in positive territory.
    • First positive reading for new orders in five months; shipments continued to rise.
    • However, employment continued to decline for fifth consecutive month.
    • Six-month ahead expectations jumped to highest level since July 2021.
    • Balance on goods widened a bit in Q4, while the services balance narrowed.
    • Net primary income flows nearly offsetting, producing small change.
    • Capital account mixed with net direct investment, but net sales of portfolio assets.