Market 03/18: Market bracing for FED and BOJ meetings

Market ahead of March FOMC: 2024 interest rate expectations rise

Market becomes more hawkish than the Fed due to persistent inflation:

• Futures market shows interest rate expectations at 4.7% by year-end — highest since Oct 2023

• Meanwhile, the December FOMC dot-plot shows FOMC members expect rates at only 4.6% by year-end.

Since 2018, only 2 times have futures-implied rates exceeded dot-plot expectations: both due to CPI inflation higher than predicted

High interest rate environment leads to, for the first time in history, household non-mortgage interest payments equaling mortgage interest payments.

BOJ meeting update: BOJ prepares market psychologically with reverse repos

• BOJ starts meeting today, rate decision to be announced tomorrow

• After nearly 1 month, BOJ conducts operations again gensaki (similar to repo contracts with Japanese government bonds as collateral).

  • Nikkei says this is to bolster short-term capital for the interbank market - to mitigate shock to overnight interbank rates if BOJ raises short-term rates this week.

Number of JPY derivative contracts traded hits 17-year high

• BOJ expected to end negative interest rate policy this week

• Read more at: BOJ's pivot speed after Shunto - impact on global financial markets

China: Macroeconomic data surprisingly better than expected

• China's Jan and Feb industrial production +7% Y/Y, far exceeding economists' estimates.

• Retail sales +5.5% Y/Y

• Fixed asset investment +4.2% (Y/Y), stronger than forecast (+3.2% Y/Y).

• However, real estate sector remains a major drag on the still sluggish economy: investment -9% and home sales -33% Y/Y

Key events for the week 03/18 - 03/22

1. BOJ (Japan) rate decision - Tuesday

2. New home construction data - Tuesday

3. Fed rate decision - Wednesday

4. Fed press conference - Wednesday

5. Philly Fed Manufacturing Index - Thursday

6. Existing home sales data - Thursday

7. Fed Chair Powell speech - Friday

• Corporate earnings release schedule for next week:

Other news

1. Bankruptcy filings in Canada surge with nearly 800 in Jan 2024 alone.

• 2023 bankruptcy filings: +40% Y/Y

• Number of businesses filing for bankruptcy at 13-year high.

2. Apple and Google negotiating to integrate AI tool Gemini into iPhone

3. NAHB Housing Market Index rises to 51, up from 48 last month

4. Deloitte undertakes largest restructuring in a decade to cut costs