Global News Update - March 18-22, 2024
This week's global economic developments, characterized by strategic central bank policies, resilient labour markets, and significant AI investments, paint a picture of cautious optimism amid ongoing challenges.
In the U.S., lower-than-expected retail sales growth and a steady Federal Reserve rate reflected a guarded economic approach amid easing inflation. The Eurozone and Japan also saw significant monetary policy shifts, with the ECB hinting at future rate cuts and Japan ending its long-standing negative interest rate policy. Australia's strong labour market contrasted with New Zealand's recession, indicating varied regional economic health. The yuan's depreciation highlighted China's economic recovery complexities. A surprising interest rate cut by Switzerland's SNB hinted at a possible trend among central banks. In the tech sector, substantial investments in AI, particularly in European and UK startups, signified a growing global focus. At the same time, the U.S. grappled with balancing ESG goals with industry pressures, as seen in the Biden administration's approach to auto emissions standards and this period exemplified a global economic landscape characterized by strategic adaptations to ongoing challenges and evolving opportunities.
Here are the details:-
United States (USD)
- Retail Sales & Economic Outlook: Retail sales grew by 0.6% MoM in February, below expectations, signalling a potential limit to consumer expenditure's contribution to economic growth.
- The Federal Reserve's stance as of early 2024 has been to maintain the benchmark overnight borrowing rate steady within the 5.25%-5.5% range, which has been the status quo since July 2023. This decision reflects the Fed's cautious approach towards adjusting monetary policy amidst economic uncertainties.
Despite recent high inflation readings, Federal Reserve Chair Jerome Powell has indicated that the underlying trend is slowly easing US price pressures. The Fed is on track for three interest rate cuts this year, affirming that solid economic growth will continue. The central bank's long-term economic projections forecast the growth of U.S. GDP to be slowed to 1.4% in 2024, while the U.S. unemployment rate rises to 4.1%. Additionally, the Fed projects core PCE inflation will decline to 2.4% in 2024, and it anticipates an average fed funds interest rate of 4.6% for the year.
The Fed's outlook is optimistic, with expectations for a gradual decline in inflation towards the Federal Reserve’s 2% longer-run goal. As inflation declines, the implied real, or inflation-adjusted, federal funds rate has been rising, thus increasing the degree of monetary policy restraint. A number of factors, including inflation, employment, GDP growth, and financial market conditions will determine the timing and pace of the anticipated rate cuts
Eurozone (EUR)
- Interest Rate and Inflation: The ECB indicated potential interest rate cuts starting in June, with President Lagarde noting a deceleration in consumer prices. The flash PMI for the region improved to 49.9 in March.
- Monetary Policy Framework: The ECB presented a new framework for implementing monetary policy, allowing more flexibility in lenders' cash requirements.
Japan (JPY)
- The Bank of Japan (BOJ) raised interest rates for the first time in 17 years. On March 19, 2024, the BOJ ended eight years of negative interest rates, lifting its short-term policy rate from -0.1% to between zero and 0.1%. This move is seen as a significant shift in Japan's monetary policy and marks the end of an era of aggressive monetary easing. The decision was supported by the majority of the BOJ's policy board members and was influenced by wage growth and the goal of achieving stable 2% inflation. The yen experienced a brief fall against other currencies following the hike, but the long-term impact on Japan's economy remains to be seen.
Australia (AUD)
- Labor Market Resilience: The Australian economy added significantly more jobs than expected in February, and the unemployment rate dropped, suggesting the labor market's resilience against restrictive monetary policy.
New Zealand (NZD)
- GDP and Recession Outlook: New Zealand's GDP showed a slight decline in Q4 2024, confirming a recession. This may pressure RBNZ policymakers to consider earlier rate cuts.
China (CNY)
- Economic Challenges: The onshore yuan's depreciation indicated potential regulatory openness to currency devaluation amid China's complex economic recovery.
Switzerland (CHF)
- Switzerland made a significant move regarding interest rates. The Swiss National Bank (SNB) surprised the market by lowering its main policy rate by 0.25 percentage points to 1.5%. This decision, announced on March 21, 2024, marked the first major central bank to cut interest rates after a period of hikes aimed at combating inflation. The SNB's action is seen as a potential precursor to similar moves by other central banks, including the US Federal Reserve. This unexpected rate cut reflects the SNB's assessment that national inflation is likely to remain below 2% for the foreseeable future.
Artificial Intelligence (AI)
- Global Competition & Investment: AI developments saw significant movements, including Microsoft's major investment in Inflection AI and European and UK AI startups being courted by other nations.
Environmental, Social, and Governance (ESG)
- Auto Emissions Targets: The Biden administration's decision to extend deadlines for auto emissions targets may impact the speed of electric vehicle adoption, reflecting the complexity of balancing ESG goals with industry pressures.
