• Inflation, interest rate hikes continue to wreak havoc across the US, EU and UK as central banks adopt a ‘higher for longer’ approach.
• Eurozone inflation has slowed down to only 8.5%, however core inflation is at a record high of 5.6%.
• Meanwhile in the U.S., house prices are falling faster than expected and mortgage applications for home purchases have dropped significantly.
Inflation and Interest Rates
The mantra across central banks is ‚Higher for longer‘, as the US money market swaps price at a peak rate of 5.5%. The future feds funds rate is consistent with three additional 25 basis point hikes, with no rate cuts until 2024.
Inflation continues to riot in Europe, as Eurozone headline inflation was forecasted to fall to 8.3%. However, it slowed down to only just 8.5%. Energy inflation dropped considerably to 13.7% from 19%. However, the issue that raised concern was core inflation rising to a record high of 5.6% against 5.3%. Strong data continues to put pressure on ECB February S&P manufacturing PMIs for the southern region (Italy and Spain) rose far more than expected in expansionary territory; meanwhile Germany’s unemployment remained at 5.5% for seven months, indicating a more resilient workforce than expected..
U.S House Price Declines
The S&P CoreLogic 20-city, house price index fell faster than expected, which saw the year-over-year price growth rate down from 6.8% to 4.7%. This index is a lagging indicator of prices on a three-month average going as far back as Q3 2022 – while 30-year mortgage rates have topped 7% again, mortgage applications for home purchases fell as much as 6% last week following an 18% drawdown the week prior..
U.S Economy Still Hot
ISM services got released in March 3rd and showed that the U.S economy is still extremely strong – services were better than expected; lower prices paid; stronger employment; and stronger new orders..
All eyes will be on FOMC’s next meeting which takes place on March 16th where they’ll discuss further monetary policy action that may be taken in response to economic conditions emerging over this period..