Kiwi Attacked By Hawks

Central bankers are getting increasingly hawkish.

Some higher inflation for the first time in a decade and it's blind panic, time to withdraw support immediately, any delay could be catastrophic!  

 How inflationistas see the world pic.twitter.com/1XhwXzenea— Tim (@VolaTim) June 10, 2021 

Let's start in New Zealand.

After the RBNZ cut their QE program earlier this week, the NZ CPI came in 🔥 at 1.3% QoQ (way above the 0.6% the RBNZ had forecast) and at 3.3% YoY.

Inflation is running at the highest pace in a decade.

Markets are pricing the cash rate above 1% by July 2022...

 Another step lower on AUD/NZD as NZ inflation smashes forecasts:

BBG - *NEW ZEALAND 2Q CONSUMER PRICES RISE 3.3% Y/Y; EST. 2.7%

RBNZ cash rate now priced at 1.04% by July 2022 vs current 0.25% pic.twitter.com/RYld7U9eQM— Sean Callow (@seandcallow) July 15, 2021 

Westpac now see 3 rate hikes before the end of this year... 😲

Only nine months ago the RBNZ were talking up negative rates...

Westpac are the most hawkish, but not alone in calling for hikes.

ANZ are looking for 6 x 25bps hikes between now and the end of 2022.

OIS markets are pricing two hikes by November... 👇

 🇳🇿 OIS now pricing 2x full 25bp OCR hikes by the end of the RBNZ's November decision. Westpac with the most aggressive call on the street (that I have seen) looking for 3x 25bp hikes during the remainder of '21. https://t.co/IbaqItab7c— Anthony Barton (@ABartonMacro) July 16, 2021 

The BoE are looking for the stimulus exit door...

Saunders & Ramsden have both turned hawkish in the last couple of days

Michael Saunders, a former Citigroup Inc. economist and an external member of the BOE’s Monetary Policy Committee, said policy makers should consider curtailing its bond-buying program “in the next month or two.” He stopped short of saying how he’d vote.

Last night, Deputy Governor Dave Ramsden said he could “envisage those conditions for considering tightening being met somewhat sooner than I had previously thought.”

The comments reinforce a change in tone among members of the rate-setting committee. Both officials voted in June to keep intact the central bank’s 150 billion pound ($208 billion) bond purchase program. Andy Haldane, who served as chief economist until the end of June, was the only dissenter.

“It’s a big shift,” said Dan Hanson, senior economist at Bloomberg Economics. “It’s also noteworthy that Saunders has led shifts on the committee in past. At the absolute minimum, it looks like we are heading for some hawkish dissent in August.”

Haldane's parting words were a warning about 4% inflation by year-end...

"Even if this scenario is a risk rather than a central view, it is a risk that is rising fast and which is best managed ex-ante rather than responded to ex-post.

"If this risk were to be realised, everyone would lose - central banks with missed mandates needing to execute an economic handbrake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs."

If a rate-hike handbrake turn is required across major economies to curb inflation, a fast sequence of rate hikes is bound to have a negative impact on risk appetite and lead to longer-term growth concerns (we're already starting to see these concerns voiced)...

Some will be very concerned about inflation and take action, others will change words...

And then there's Japan...

Powell and the core group remain committed to the transitory stance, even if the definition of transitory has now stretched to 'many months'...

As much as I'm convinced that inflation will prove transitory, there is a risk that the Fed will act sooner if it persists at these levels, especially if employment recovers quickly in the next couple of months.

U.S. retail sales the highlight of today's calendar.

Looking beyond the headline, it's the details that matter.

The focus is more on restaurants and services spending (rather than goods) as the economy reopens.