Swissquote Bank: IMF’s inflation forecast? 'Whatever.'

October 11, 2023

Overall market reaction to IMF’s inflation forecast was: ‘whatever’. Softening inflation expected.

‘The IMF lowered its global growth forecast to 2.9% but boosted its inflation projection from 5.2% to 5.8% for next year, warning the global central banks that they should hold on to their tight monetary policies if they want to keep inflation under control. That’s not something that investors wanted to hear,’ says Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, today. ‘Happily, the overall market reaction to the IMF’s inflation forecast was: ‘whatever’. The US 2-year yield remained steady around the 5% level on the growing choir of Fed members singing the dovish tune and the 10-year yield consolidated within the 4.60/4.65% range.‘

Softening inflation

‘Due today, the FOMC minutes will remind investors that ‘the rates will stay higher for longer’ if inflation remains above target. Going into the data, the expectation is a mostly softening inflation both for producer and consumer prices. Despite the rising crude prices, US gasoline prices have been falling since mid-August.’ ‘The risks in US yields remain tilted to the upside despite the dovish Fed talk and the safe haven inflows into the US treasuries following mounting tensions in the Middle East. The US 2-year yield remains 50bp above the upper range of the Fed funds policy target.’

‘The softer yields please equity investors. The S&P500 extended its rebound into the third straight session yesterday, and Nasdaq pulled out its 50-DMA resistance and closed above this level. Chinese equities, on the other hand, rallied after the IMF recommended Beijing to take ‘forceful action’ on its real estate troubles, and on news that China was considering fresh stimulus measures to boost growth.’