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But neither incoming hard economic numbers nor many senior policymakers have fully bought into the recession idea just yet.
But not all think a soft landing is out of the question.
JP Morgan's Bruce Kasman said his "baseline" is the lagged effect of Fed tightening does eventually drag the U.S. economy into recession late next year.
But he also said it was a "mistake to rule out a soft landing scenario."
by Mike Dolan, Twitter: @reutersMikeD; Editing by Lisa ShumakerOur Standards: The Thomson Reuters Trust Principles.
A debate on lifting central banks' inflation targets re-surfaced this week - feeding speculation about just how much economic pain monetary policymakers are willing to inflict to drag decades-high inflation back to largely arbitrary 2% goals.
Former International Monetary Fund chief economist and long-term advocate of higher inflation targets Olivier Blanchard thinks 3% could and probably should be the new 2%.
That prodded central banks into extraordinary asset purchases, negative interest rates or both just to try and get inflation back up to 2%.
And counter-intuitively for some he emphasised that higher inflation would not imply looser policy.
So good and bad news - a potentially more balanced economy, with better wage distribution but higher nominal interest rates that may spook financial markets trying to parse the trajectory for Fed or European Central Bank interest rates years hence.
REUTERS/Aly Song/File PhotoLONDON, Nov 29 - A look at the day ahead in U.S. and global markets from Mike Dolan.
They also cheered a relaxation of regulations on developer fundraising that eases the smouldering property sector bust.
A crackdown on demonstrations happened simultaneously, with Chinese authorities making inquiries into some protesters as police flooded the city's streets.
Strikingly, hawkish Dutch central banker Klaus Knot also said forecasts of recession may be overdone and fears of "overtightening" policy were a "joke".
His boss European Central Bank President Christine Lagarde said euro zone inflation, which is expected to ease this month but remain above 10%, has not yet peaked, encouraging speculation of another swingeing 75 basis point interest rate rise next month.
But you have to go back centuries in some cases to get anything nearly as bad as 2022 for 'safer' sovereign bonds.
"2023 will be the year of the bond," claimed Chris Iggo, chair of the AXA IM Investment Institute.
"Road to recession - bullish bonds and quality credit," was how SocGen entitled their view.
And while stock volatility makes forecasters nervy, there's a clear attraction for long-term funds in seeking both the fixed income as well as the lift to bond funds when sub-par price discounts disappear into maturity for most high-quality names.
"Long high quality bonds in the U.S. and Europe seems like an obvious strategy for 2023," said hedge fund manager Stephen Jen at Eurizon SLJ Capital.
REUTERS/Richard Carson/File PhotoLONDON, Nov 23 (Reuters) - You can sometimes buck the market - for a time at least.
Even mention government or central bank intervention in financial markets to many professionals and you elicit a tirade on such futility against forces beyond control.
Against that, this year was marked by three very different examples of direct financial market intervention that appear to have succeeded in their narrow and targetted goals at least - despite many doubts whether they would or even could work.
And it was at least in some part due to the SPR intervention, even if that was aided by central bank tightening and slowing world demand.
All three examples of market intervention had their own dynamics and drivers.
And for financial markets it begs the question as to whether the extent of the monetary or fiscal tightening currently assumed will ever actually happen.
The OBR reckons UK consumer price inflation has now peaked and will back off to a full-year rate of 7.4% next year.
But assuming standing market forecasts for energy prices and BoE rates, it then sees inflation fall below zero for eight quarters from the middle of 2024.
The BoE also expects headline inflation to plummet into 2024 - and its 'fan chart' of the range of possible outcomes also has an outside chance of deflation then too.
Delaying spending cuts until after an election won't help much in that regard if indeed they're seen necessary at all.
LONDON, Nov 16 (Reuters) - If financial markets bore the brunt of this year's interest rate shock, housing now stands in the firing line.
With long-term U.S. fixed mortgage rates above 7% for the first time in 20 years, and more than double January rates, U.S. housing sales and starts are already feeling the heat.
"We see a relatively greater risk of a meaningful rise in mortgage delinquency rates in the UK," Goldman said this month.
While Australia and New Zealand have higher variable mortgage rates, British mortgage holders also have a higher vulnerability to rising joblessness.
All of which bodes ill for UK house prices - although forecasts are still far from apocalyptic.
LONDON, Nov 11 (Reuters) - Defusing this year's single biggest shock to the world economy could catalyze a rebound in global markets many investors feel is overdue - but may also raise other uncomfortable conundrums.
Murmurs about some endgame in the 9-month-old Russian invasion of Ukraine - suggestions of anything from 'talks about talks' to some negotiated ceasefire - have swirled in media over the past week.
All were watched as intently by global investors as much as politicians or military strategists.
Western sanctions slapped on Moscow seeded an energy and food price explosion that compounded and elongated the post-pandemic inflation spike around the world.
US Geopolitical RiskUS inflation, Fed rates and marketsThe opinions expressed here are those of the author, a columnist for Reuters.
"The latest round of China reopening hopes have helped drive us higher here again," he told clients.
Any change to that scenario may be a positive impulse for cyclical stocks, it said, but it adds to the inflation headache for central banks.
"The somewhat negative implication of stronger China growth is that it would likely add to global inflationary pressure.
"We suspect Chinese re-opening (will) imply upside risks to commodity prices and global rates."
But even with a G20 summit due next week, global cooperation has been in short supply in fractious 2022.
The net effect was to catapult next year's implied Fed terminal rate well above 5%.
Fed vs BoE Terminal RatesNIESR chart on UK variable mortgagesBANK "IN A HOLE"Although the BoE insisted further hikes from 3% would likely be needed, two of the nine person policymaking council voted for a smaller rate rise this week.
State Street's EMEA macro strategist Tim Graf also thinks a terminal rate closer to 4% is now "the more likely end state for policy rates."
The BoE needs to be super careful about the pound because another withering lurch will simply aggravate import and energy price inflation.
by Mike Dolan, Twitter: @reutersMikeD; Editing by Josie KaoOur Standards: The Thomson Reuters Trust Principles.
And economic policy is only gradually being taped back together before the BoE meets again.
It's also pulled the implied peak Bank rate next year some 150bp lower to 4.75% over the same period - back below the assumed 'terminal rate' at the U.S. Federal Reserve.
"We see the risks skewed towards the BoE sounding dovish this week and ultimately "underdelivering" versus current pricing," the Deutsche analyst wrote.
Central bank rate hikes and SterlingReuters Graphics Reuters GraphicsThe opinions expressed here are those of the author, a columnist for Reuters.
by Mike Dolan, Twitter: @reutersMikeD; Editing by Josie KaoOur Standards: The Thomson Reuters Trust Principles.
A down shift in the rate hiking pace by the Bank of Canada this week just stoked that speculation.
And even in the face of some spooky corporate health warnings, stock markets fed off Fed 'pivot' talk yet again and have been chomping at the bit for a fortnight.
When that 2-10 yield curve inverted in April for the first time in almost three years - shortly after the Fed's first hike - recession angst took a firm grip.
Fed economists argued vociferously that the 2-10 yield curve was not reliable and insisted a 'soft landing' was still possible if more accurate shorter-term yield curve spreads that remained positive were used instead.
An elongated measure of the yield curve between 3 months and 10 years - used by the New York Fed in its recession probability models - dropped into negative territory for the first time since the pandemic hit.
The stakes are high as it potentially affects the future use and effectiveness of extraordinary monetary policies such as bond-buying 'quantitative easing' (QE) and questions the wider political independence of central bank policymaking.
The European Central Bank, Bank of England and U.S. Federal Reserve are all - to differing degrees - now facing a backwash from years of policy-driven but lucrative balance sheet expansion.
As they lift interest rates, that balance sheet burns a hole in their pockets - or more particularly the pockets of their governments long used to windfalls coming the other way.
That will surely climb as the BoE is expected to at least double its policy rate, the rate paid on bank reserves, by May.
G4 central bank balance sheetsThe easy-money era is overReuters Graphics Reuters GraphicsThe opinions expressed here are those of the author, a columnist for Reuters.
But Broadbent's concentration on the likely peak terminal rate next year is what matters most.
For context, that UK terminal rate, now pencilled in for around the middle of 2023, rocketed almost two full percentage points from just prior to the botched mini-budget to as high as 6.25%.
Fed terminal rates, now targeted about March next year, have jumped 150 bps to 5% over the past two months.
And Morgan Stanley, for example, see a UK terminal rate as low as 4% - a huge drop from current market pricing.
The stubborn refusal of terminal rate pricing to return to where it was last month reflects the extent of those jitters.
Societe Generale's contrarian strategist Albert Edwards said Britain's reawakening of the fabled 'bond vigilantes' would "reverberate around financial markets for years to come."
And many read across to ebbing liquidity in U.S. Treasury markets for a take on Fed parameters this time around too.
Bank of America's October survey of global fund managers, released on Tuesday, certainly backs that up.
Register now for FREE unlimited access to Reuters.com Registerby Mike Dolan, Twitter: @reutersMikeD.
Charts by Bank of America, Vincent Flasseur and Lewis Krauskopf; Editing by Josie KaoOur Standards: The Thomson Reuters Trust Principles.
Their joint communique released by the U.S. Treasury late on Wednesday did give Japan something - but it was thin gruel.
read more"Recognizing that many currencies have moved significantly this year with increased volatility, we reaffirm our exchange rate commitments as elaborated in May 2017," the G7 wrote.
And, for the record, the 2017 phraseology was that excess volatility and disorderly currency moves have negative impacts on their economies and financial stability.
read more"We cannot tolerate excessive volatility in the currency market driven by speculative moves," he opined after.
The big question is whether this dollar surge is in fact a "short run" aberration or whether it is a more permanent feature of the global landscape.
And futures now assume the inflation fight will fall solely on the BoE and expect it to triple policy rates to as high as 5.8-6% next year.
On Tuesday, the independent Institute for Fiscal Studies said Kwarteng needed 62 billion pounds ($68.22 billion) of spending cuts to keep public debt sustainable over time, with borrowing this year on course for 194 billion pounds and still above 100 billion by 2026/27 - over 70 billion higher than OBR forecasts in March.
QE involves the purchase of mostly gilts from commercial banks in return for interest-bearing reserves at the central bank.
And, unlike other major central banks, the BoE policy rate itself is the rate paid on those bank reserves.
NIESR last year urged a solution to the problem whereby Treasury and central bank reduced the maturity mismatch by swapping longer-dated gilts back to Treasury to cut duration of its portfolios.
There were two main elements to the blowup in so-called Liability Driven Investment (LDI) strategies for British pension funds over the end of the third quarter.
And yet it's private credit - ranging from direct corporate lending vehicles to leveraged loans - where arguably least is known.
The rising rate environment alone has made some wonder how resilient private credit strategies given they don't have to mark to market regularly.
To cope with illiquidity, the survey showed investors increasingly pairing private credit allocations with cash or more liquid core fixed income instruments.
The boom in private credit assets has been spectacular - but booms don't last forever and shocks like the ones we've seen in recent weeks are at least a shot across the bow.
At the International Monetary Fund's last count in the first quarter of this year, almost 5% of the world's foreign currency reserves were denominated in sterling - a total of $625 billion dollars worth of sterling and sterling assets on a crude calculation from the $12.55 trillion total.
The UK has a reserve currency so it can always issue debt – it's just a question of the right price."
But what if that reserve currency position is threatened and foreign central banks balk at holding so much sterling in their national savings stashes?
Seven of the world's top 10 reserve holding central banks are in Asia or the Middle East.
UBS chart on its 2022 survey of world reserve managersThe opinions expressed here are those of the author, a columnist for Reuters.
Whacked further by a soaring dollar, indices of overseas sovereign bonds in dollar terms are down almost 24% - even worse than then S&P500's (.SPX) 19% year-to-date reversal.
Far from portfolio buffers, these sorts of moves make bonds meat and drink for hedge funds.
And even though equity prices have fallen and cheapened on many models, their relative value versus bonds has not.
It trimmed expected equity returns by a quarter point.
Reuters poll-U.S. treasury yield outlookRobeco Chart on Asset Allocation HistoryThe opinions expressed here are those of the author, a columnist for Reuters.