Algebris’ global credit strategy team takes stock of the market situation, recalling the latest statements from central banks.
Thus we read in the Algebris Global Credit Bullets:
“Last week we saw a flurry of statements from global central banks. The Federal Reserve proved aggressive, with a 75bp hike and a sharp upward revision of its terminal rate to 4.6%, despite the weakening of its growth forecast for 2023. The BoE raised rates by 50bps. pb and launched the Quantitative Tightening, an active program to reduce its balance sheet, after the expansion during the period of Covid. Strong increases were also recorded in Norway and Switzerland. In Japan, the Bank of Japan (BoJ) was accommodative and refrained from political action, but had to rush to support its currency as the yen came under pressure following the monetary policy meeting.
“In general – also reads the comment by Algebris – Asian currencies remain under pressure, as the differential on interest rates with respect to the United States is widening in favor of the latter. Indeed, currencies remain under pressure in China and India as well. Among emerging markets, South Africa raised rates while Brazil ended its cycle of hikes. Overall, central banks continue to be in tender mode. The Fed is setting a hawkish tone to the market, with other global central banks having to choose whether to keep up by raising the short end of the domestic yield curve (Europe), or whether to lag behind and suffer a weakening of their own currency (Japan). ). Countries where the central bank is lagging behind and the policy mix is not credible get pressure on both (UK). Overall, volatility remains high and widespread, with markets being far less lenient towards government fiscal policies than in the time frame of indefinite Quantitative Easing. The volatility of yields and exchange rates is therefore destined to persist in global markets, at least until the Fed provides indications on the end of the cycle of rises ”.