Behold — an illustrative chart from Morgan Stanley’s global economics team (click to enlarge):
The last five days have brought cuts from the ECB, the Reserve Banks of India and Australia, Poland’s central bank, and the Bank of Korea, as inflation keeps falling, global growth disappoints and markets melt up.
And MS make the very sensible point that it’s not over yet (The Bank of England held rates since this note was published):
The ECB made it clear in the last press conference that the door for more rate cuts, possibly including the deposit rate which currently stands at zero, remains open. While our UK team sees only a 40% probability of more QE being announced by the MPC today, the arrival of the new Bank of England Governor Carney this summer may lead to further easing measures, even though this is not our central call at this stage. In Australia, Gerard Minack is now forecasting another 25-75bp of rate cuts over the next two quarters, following the rate cut earlier this week. In Poland, Pasquale Diana now expects another 50bp of rate cuts following yesterday’s cut and the chances that the central bank in Hungary will cut materially more are rising. Also, we expect Turkey to cut rates next week by at least 25bp and Israel by 25bp on May 27. Moreover, while our Russia team only expects a rate cut later this year, an easing move in the near term would not come as a major surprise.
More generally, most central banks in our coverage universe still have a bias to ease according to our central bank watchers, as the predominance of the colour green (indicating an easing bias) in Exhibit 1 indicates. Given this disposition, it doesn’t take much in terms of downside surprises on growth or inflation to tip the balance for more central banks to pull the trigger for more easing. Against this backdrop, while we have seen a lot of central bank action recently, we conclude that it’s too early to wave goodbye to GME3. Stay tuned.
When the music is playing (and the squiggle is meandering) etc…
Related links:
From junk bonds to… FT Alphaville
Charting not-so-high-yield bonds – FT Long Short
Asian currency wars, exporting deflation and the house price bind – FT Alphaville