Is the bond sell-off over?

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Debt investors got some relief this week as bonds rose and benchmark U.S. Treasury yields fell from 16-year highs after stronger-than-expected jobs data on Oct. 6.

The 10-year Treasury yield fell 0.15 percentage point this week to 4.63%, despite a brief rebound on Thursday when official data showed U.S. inflation failed to slow as expected. Yield is inversely proportional to price.

Investors and economists are now asking whether interest rates and bond yields have peaked, following a market rout that saw benchmark U.S. Treasury yields rise 1.6 percentage points in six months.

Multiple Fed spokespeople this week said the Fed may have finished raising interest rates, with Fed Vice Chairman Philip Jefferson saying a sharp rise in long-term yields could help curb the need for further rate hikes.

Analysts at Capital Economics believe that bond yields will continue to fall, “because we believe disappointing growth and lower-than-expected inflation will lead to the Fed cutting interest rates faster and deeper than current market discount levels.”

But others are not convinced. Florian Ielpo, head of macro at Lombard Odier Investment Managers, expects monetary policy to remain hawkish while inflation remains above target and falling savings rates will push up real interest rates (interest rates after taking inflation into account) as less capital is available. it’s cost.

“Those two factors combine to make the 5% U.S. 10-year Treasury rate a solid anchor,” he said. Mary McDougall

Is UK inflation still falling?

Most economists expect data on Wednesday to show UK inflation slowed again in September.

Annual overall price growth fell more than expected to 6.7% in August, prompting the Bank of England to keep interest rates unchanged in September after raising interest rates 14 times in a row. Another drop in inflation could help bolster investor expectations that the Bank of England will keep interest rates on hold at its next meeting on November 2.

Economists polled by Reuters forecast consumer price inflation would fall to 6.5% last month, with core inflation falling to 6% from August’s 6.2%.

However, an unexpected rise in inflation could change market expectations. Investors and policymakers will also keep a close eye on labor market data due on Tuesday for signs of lingering domestic price pressures.

Investec economist Ellie Henderson said annual adjustments to private school fees and higher petrol prices would push inflation higher in September, but she believed easing pressure on food and clothing prices would offset those effects.

Unofficial food inflation indicators such as retail inflation and grocery inflation released by the British Retail Consortium and research company Kantar all showed that price pressure eased in September.

Deutsche Bank economist Sanjay Raja said the downward trend in inflation should continue beyond September. “After a large upside surprise in the first half, we expect inflation to continue declining in the second half of 2023, with essentially no signs of abating,” he said.

He also expects inflation in September and the rest of the year to be lower than the Bank of England’s forecast.

Investec’s Henderson warned, however, that there were “upside risks” to the inflation outlook, particularly due to rising energy prices due to the war between Israel and Gaza, Saudi oil supply cuts and damage to Nordic gas pipelines. Roman Valentine’s Day

How fast is China’s economy growing?

Markets will focus on Wednesday’s third-quarter gross domestic product data and potential changes to benchmark interest rates as China struggles to regain confidence in its economic prospects and foreign investors continue to shy away from Chinese stocks.

The median forecast of economists surveyed by Bloomberg showed that the economy will expand at an annual rate of 4.5% in the third quarter. That would be slower than the second quarter – largely due to base effects that now don’t exist – and significantly below Beijing’s annual growth target of “about 5%”.

Economists at ANZ expect economic growth to be in line with expectations due to improvements in other key data due on Wednesday – industrial production, retail sales and fixed asset investment – and an outperformance in any of them could boost share prices Go higher.

The growth data is likely to influence expectations for Friday’s rate announcement, with most economists expecting the Bank of China to keep its benchmark one- and five-year lending rates unchanged.

However, ANZ economists said that “the bank may decide to lower the one-year LPR by 0.05 percentage points,” which may boost short-term liquidity in the Chinese banking system. hudson lockett

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