Daily Insights - New York Open Edition

?What’s driving markets today into the New York open?

?·?????New Zealand central bank hiked 50 bps, announces aggressive rate path

·??????ECB hawkishness intensifies, but the market is looking at Fed minutes

·??????EU continues to work on a Russian oil embargo as Hungarian PM digs in

Why it matters?

Central banks continued to dominate the news cycle this morning with the latest bout of aggressive rhetoric regarding inflation coming from the Reserve Bank of New Zealand. As it hiked rates 0.5%, the RBNZ raised its expectations about CPI levels and interest rates, signalling a rate hiking cycle that was steeper than after the previous meeting. The RBNZ expects rates around 2.68% by September, which means 2 more hikes before then. Into September 2023, the RBNZ expects rates to reach 3.95%. With the ECB’s rhetoric about higher interest rates unabated, stock markets sold off.?

A European embargo on Russian oil imports continued to be widely discussed, while oil prices continued to trade in a $2 range expecting a final decision. While EU officials have been stating there’s progress on an agreement, the Hungarian Prime Minister refused to stand down, firmly opposing the move.

What we’re hearing??

The RBNZ stated that inflationary pressures are persisting, and production capacity is limited. The statement sheds light on central bank thinking globally, which is that the global economy is in a phase where excess demand is driving higher costs. While the New Zealand monetary policy statement acknowledged higher rates could impact highly indebted consumers the most, it also stressed that action is necessary to prevent further price increases.?

The German economy minister’s spokesperson stated that payments for gas in Russian euros and dollars are working and aren’t against EU rules. In the meantime, Hungary’s foreign minister outlined that his country is to continue opposing a Russian oil embargo until there’s a solution on the table.

What we’re watching?

ECB speakers this morning are followed by some key data from the U.S. where durable goods orders and the Federal Reserve’s meeting minutes will be watched closely. The recent selloff of risk assets, namely technology stocks that’s been on pause since the start of the week, could resume if the U.S. central banks signals further commitment to higher rates. (A commitment that the central bank has been consistent in delivering over recent months).?

What they’re saying?

RBNZ Governor Orr: I am convinced that households will be able to bear higher rates, this is our best foot forward to contain inflation.

Between the lines

The decision of the Reserve Bank of New Zealand this morning has continued a trend of increasingly hawkish central banks globally. With higher rates, demand is set to continue to decline which in turn could lead to more market stress. Risk assets are under pressure, with a recent rally in gold also on pause, as the Fed delivers its latest line of thinking later this evening with its latest meeting minutes. Any confirmation of the aggressive rate path going forward will continue to put pressure on risk assets and might spread out to commodity currencies as well.?

Flashback

North Korea tested a new ballistic missile just as Biden was wrapping up its Asian tour. Kim Jong Un continued reminding the world that his country is a factor when it comes to geopolitics.