Top of main content

Macro Monthly: More central banks getting ready to cut rates

15 Apr 2024

Key takeaways

  • Despite inflation no longer surprising on the downside, we expect major central banks to start cutting rates from June.
  • Sticky services inflation, a better growth picture and tight labour markets may affect the pace of cuts…
  • …and there are still risks out there for both growth and inflation.

After seeing markets’ expectations for the timing of the first rate cuts from major central banks fluctuate in Q1, the latest set of policy meetings suggests that we’re back on track for June. Inflation may no longer be surprising on the downside, including in the US where inflation surprised on the upside again in March, but policymakers are satisfied that it has moved to a lower gear in most economies. While the last leg of inflation is proving to be stickier, and it is service inflation fuelling that momentum, policymakers appear to feel that they can move policy rates to be less restrictive soon.

Balancing act

The inflation-growth balance remains key

For central bankers, balancing the two-sided risks of inflation and growth remains the key challenge, as cutting too soon may stoke inflationary pressures given tight labour markets and result in a policy reversal, while holding rates for a longer period may result in a harder landing. We expect the first rate cuts from the Federal Reserve (Fed),the European Central Bank (ECB) and the Bank of England (BoE) in June.

Many central banks in Asia are waiting for the Fed to cut

Meanwhile, many central banks in emerging economies, particularly in LatAm and Central and Eastern Europe, have been cutting rates for quite some time. Asia remains an exception, with policy rates mostly on hold, apart from cuts in mainland China and hikes in Taiwan (surprisingly) and Japan, where negative rate policy ended in March.Many central banks in Asia are waiting for the Fed to embark on its easing cycle before taking their first steps.

Source: Macrobond

Source: Macrobond

Robust data

Global PMIs and industrial production have picked up

There has been broadly good news on the growth front. The PMIs remain robust in both the manufacturing and service sectors, with industrial and trade data showing early signs of recovery, supported by resilient consumer demand. Mainland China is also seeing some signs of bottoming out in its data. We could also be seeing turning points in housing markets – with rising prices leading to an upturn in transactions and eventually construction in 2024.

Labour market remains tight

The other key area to keep an eye on is the labour market. Overall, labour markets remain tight with firms still hiring and wage growth elevated. That said, there are some signs of softness: quit rates have fallen and the pace of wage growth has also slowed in some markets. Nonetheless,layoffs are low and confidence over job availability is high.

Source: Macrobond

Source: Macrobond

Risks in play

Policymakers need to be mindful of inflationary risks

That said, policymakers should remain cautious of the risks. Higher interest rates are still feeding into increased consumer delinquencies and business bankruptcies, and the longer that rates stay high,the more strain we might see. Geopolitical risk, be that over supply chains or elections, is likely to keep markets on their toes – with risks of higher inflation from any disruptions to the global economy. Things may be getting brighter, but there are plenty of risks out there.

Our GDP growth forecasts

We recently lifted our annual average global GDP growth forecast for 2024 from 2.4% to 2.6%,which is also our GDP growth forecast for 2025. The main drivers of the positive revision are the US, where an increase in the supply of workers may continue to support economic momentum in 2024, and India, where PMI manufacturing and services have risen and corporate margins remain higher than the long-term average.

Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis, and are from the Macro Monthly dated 11 January 2024.

Green indicates an upward revision, red indicates a downward revision.

Source: Bloomberg, HSBC Economics

Source: Bloomberg, HSBC

⬆Positive surprise – actual is higher than consensus, ⬇ Negative surprise – actual is lower than consensus, ➡ Actual is in line with consensus

Source: Refinitiv Eikon, HSBC

Back to top  

Related Insights

Exports are starting to tick up, and consumption is proving quite resilient. [2 Apr]
During this year’s National People’s Congress, ministers detailed concrete measures aimed...[20 Mar]
With inflation no longer surprising on the downside…[12 Mar]

Disclosure appendix

Additional disclosures

1. This report is dated as at 13 April 2024.

2. All market data included in this report are dated as at close 12 April 2024, unless a different date and/or a specific time of day is indicated in the report.

3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business.Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.

Disclaimer

This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is distributed by HSBC Bank Canada, HSBC Continental Europe, HBAP, HSBC Bank (Singapore) Limited, HSBC Bank (Taiwan) Limited, HSBC Bank Malaysia Berhad (198401015221 (127776-V))/HSBC Amanah Malaysia Berhad (200801006421 (807705-X)), The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank Middle East Limited, HSBC UK Bank plc, HSBC Bank plc, Jersey Branch, and HSBC Bank plc, Guernsey Branch, HSBC Private Bank (Suisse) SA, HSBC Private Bank (Suisse) SA DIFC Branch, HSBC Private Bank Suisse SA, South Africa Representative Office, HSBC Financial Services (Lebanon) SAL, HSBC Private banking (Luxembourg) SA and The Hongkong and Shanghai Banking Corporation Limited (collectively, the “Distributors”) to their respective clients. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice. HBAP and the Distributors are not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP and the Distributors give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document. Thisdocument is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You should not use or rely on this document in making any investment decision. HBAP and the Distributorsare not responsible for such use or reliance by you. You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document. You should not reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to any jurisdiction where its distribution is unlawful.

The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/business.

However,the Bank disclaims any guaranty on the management or operation performance of the trust business. The following statement is only applicable to by HSBC Bank Australia with regard to how the publication is distributed to itscustomers: This document is distributed by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL/ACL 232595 (HBAU). HBAP has a Sydney Branch ARBN 117 925 970 AFSL 301737.The statements contained in this document are general in nature and do not constitute investment research or a recommendation, or a statement of opinion (financial product advice) to buy or sell investments. This document has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the document you should consider its appropriateness to you, with regard to your objectives, financial situation, and needs.

Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”)

HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India is a distributor of mutual funds and referrer of investment products from third party entities registered and regulated in India. HSBC India does not distribute investment products to those persons who are either the citizens or residents of United States of America (USA), Canada, Australia or New Zealand or any other jurisdiction where such distribution would be contrary to law or regulation.

Mainland China

In mainland China, this document is distributed by HSBC Bank (China)Company Limited (“HBCN”) and HSBC FinTech Services (Shanghai) Company Limited to its customers for general reference only. This document is not, and is not intended to be, for the purpose of providing securities and futures investment advisory services orfinancial information services, or promoting or selling any wealth management product. This document provides all content and information solely on an "as-is/as-available" basis. You SHOULD consult your own professional adviser if you have any questions regarding this document.

The material contained in this document is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HSBC India does not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual resultscould differ from those projected in the forward-looking statements. Investments are subject to market risk, read all investment related documents carefully.

© Copyright 2024. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.

No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.

Important information on sustainable investing

“Sustainable investments” include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors (collectively, “sustainability”) to varying degrees. Certain instruments we include within this category may be in the process of changing to deliver sustainability outcomes.

There is no guarantee that sustainable investments will produce returns similar to those which don’t consider these factors. Sustainable investments may diverge from traditional market benchmarks.

In addition, there is no standard definition of, or measurement criteria for sustainable investments, or the impact of sustainable investments (“sustainability impact”). Sustainable investment and sustainability impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.

HSBC may rely on measurement criteria devised and/or reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of sustainability impact will be achieved.

Sustainable investing is an evolving area and new regulations may come into effect which may affect how an investment is categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.