The MUFG Global Markets Podcast

May FOMC Preview, the last 25bp hike as attention turns to the debt ceiling?: The MUFG Global Markets Podcast

George Goncalves, MUFG Head of U.S. Macro Strategy, thinks that given the macro to markets setup, the Fed shouldn’t be hiking at this point, but they likely will, so long as the rates market is pricing in over a 75% chance of rate hike come the time of the May FOMC rate decision meeting conclusion. Thus, the Fed is on track to deliver another 25bp hike and take up the range for the Fed Funds target rate to 5-5.25%. That said, he also believes that this could ultimately be the last hike of what was one of the most aggressive Fed hiking cycles in recent history.
The continued slide lower in U.S. economic activity with ongoing improvements in inflation measures, coupled with renewed banking turmoil and a more pressing U.S. debt ceiling impasse ahead warrants a pause, but again the Fed will likely hike at the May meeting. Therefore, Chair Powell will try to convey a neutral message and not sound overly hawkish or dovish at this juncture. We expect the presser to be dominated by regional bank concerns, especially after witnessing another bank failure this year (and the third such bank failure happened days before the FOMC decision).
Overall, the Fed’s rate path from here is fraught with many challenges. For example, until financial conditions worsen (which we believe they will into the 2nd half of 2023) and/or if there were to be a cascading of bank related trouble in the near future, unless things are glaringly and perpetually bad, the Fed will try to look past the recent bank failures. Reason being is that they want to push back on the market pricing of rate cuts and hold the line – conveying that they are planning to hold rates “higher for longer” to ensure all these rate hikes are working at wrestling inflation closer to their 2% target. The tricky part will be that holding rates at these even higher rates levels will likely expose further weakness in the banking system and potentially the private credit sector as well.Net, we won’t know for sure if this is the last rate hike – that will hinge on their assessment that enough has been done. The markets still have to contend with NFP and CPI ahead (which depending on the messaging from the Fed and the outcome of this upcoming data batch, could re-introduce some rate hike pricing into June). However, in our view the outlook will likely worsen from here and uncertainty may go up a lot if the debt ceiling process is taken down to the wire. If so, the key thing to watch post FOMC will be how Fed speakers react to the data and debt ceiling developments. 
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Small but significant changes at the Ueda-led Bank of Japan – The MUFG Global Markets Podcast

The Bank of Japan voted to keep monetary policy unchanged at the April Monetary Policy Board meeting, but also made some significant changes including ending its forward guidance for rates and strengthening its outlook for inflation. New Governor Kazuo Ueda started his term by announcing a comprehensive review of BoJ monetary policy, we believe differences between the new and previous BoJ Governor are slowly becoming apparent. USDJPY is up and JPY rates down. This price action is consistent with Japanese life insurance company fiscal year 2023 investment plans which were released last week.
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido reviews the April Bank of Japan meeting, discusses Japanese life insurance company investment plans and shares potentially triggers for Japanese markets in May. He also shares his views on spot Dollar/Yen, Yen rates, and Yen basis.
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Will the recent USD strength be tested? The Global Markets FX Week Ahead Podcast

The dollar advanced toward the end of the week before weakening into the London close. This was a good reflection of a choppy week of trading and Derek Halpenny, Head of Research Global Markets EMEA, talks to Simon Mayes, Head of UK, Ireland and Swiss Corporate Sales, about whether the large USD/JPY jump after Governor Ueda’s first BoJ policy meeting can be sustained.
Derek also looks ahead at the dollar’s prospects, with particular focus on the FOMC and ECB meetings taking place next week.
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ESG Series: The EU’s response to the US Inflation Reduction Act (IRA) – Scaling the “Atlantic IRAs” renewables capex supercycle: The Global Markets Podcast

The US Inflation Reduction Act (IRA) – a USD369bn legislative package combining large-scale green subsidies with healthcare savings and new revenue measures through to 2032 – is a landmark and welcome US climate policy, that enacts historic deficit reduction to combat inflation. In a clear threat to Europe through its competitiveness effect, the European Commission has presented its response – a detailed piece of legislation labelled the Green Deal Industrial Plan of which the Net Zero Industry Act (NZIA) is the central initiative.
Ehsan Khoman, Head of Commodities, ESG and Emerging Markets Research (EMEA), discusses MUFG’s latest ESG report that examines Europe’s response to the transformational US Inflation Reduction Act and why he believes this goldilocks era of regulation will carve the contours of a renewables capex supercycle (see here for the full report).
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BoJ Governor Ueda’s first policy meeting – The MUFG Global Markets Podcast

The unified local elections are nearing an end, with strong showings by ruling party candidates. With no discernable upward stress on JPY rates, the Tokyo market clearly expects Bank of Japan Governor Kazuo Ueda to take his time adjusting monetary policy.
Yen cross-currency basis and Dollar / Yen have been relatively stable. In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido discusses the Lower House elections and shares his outlook for the Bank of Japan meeting this week. He also shares his views on spot Dollar / Yen, Yen rates, and Yen basis.
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How will domestic political events and BoJ policy meeting impact JPY performance? The Global Markets FX Week Ahead Podcast

Lee Hardman, Senior Currency Analyst, and Andrea Hayward, Vice President of the Japanese Client Sales Group for EMEA in London, discuss implications for the JPY from the Bank of Japan’s upcoming policy meeting and domestic political events.
They also discuss why the USD's recent rebound is unlikely to be sustained against other major currencies.
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Combating climate change and supporting transition financing: The MUFG Global markets Podcast

In today’s episode and ahead of Earth Day this weekend, Dr. Tobi Petrocelli, MUFG Head of Sustainability & Transition Finance Strategy, and Beth Gilroy, Deputy Head of Sustainability & ESRM, discuss how MUFG is helping to resolve environmental and social issues focusing on combating climate change and supporting transition financing. We also review two key publications – our recently released MUFG Progress Report, which illustrates how we as a global institution are moving towards carbon neutrality and our MUFG Transition Whitepaper, which was published last October, in which we share our sustainability views globally and summarize the decarbonization efforts of Japanese companies as well as the energy policy of Japan.  
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Stability returns but too soon to say the coast is clear…:The MUFG Global Markets Podcast

George Goncalves, MUFG Head of U.S. Macro Strategy, is encouraged that stability has returned to the broader financial marketplace and the banks in particular, but he believes that it’s too soon to say the coast is clear. In his view, without a new negative catalyst, it’s understandable to see markets and policymakers return to their concerns over where we are in the inflation versus growth debate. And it’s true that vols in the broader asset classes have receded from the extreme levels seen in March. The concern is that after having witnessed some of the biggest moves in history, they can always come back and be disruptive once more. We think the markets have through the process of having less conviction on the macro outlook become a bit complacent as they wait for the next catalyst. However, we might need to wait until the conclusion of the upcoming Fed & ECB meetings in May before we get some clarity on where we truly are in the economic and liquidity cycle. Meanwhile, the debt ceiling concerns are growing and wait in the wings once the central bank meetings conclude. We remain cautious heading into summer.
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Have securities flows in and out of Japan reached an inflection point?: The MUFG Global Markets Podcast

The Yen has weakened at the start of Japan’s new fiscal year while Yen rates and Yen cross currency basis have lacked momentum. The assassination attempt on Prime Minister Fumio Kishida over the weekend was shocking but did not elicit a major reaction in Japanese financial markets.
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido reviews recent price action and cross border security flows in March, as well as changes in market structure of the Tokyo market. He also shares his views on spot USDJPY, Yen rates, and Yen basis.
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US inflation data leaves USD on weak footing: The Global Markets FX Week Ahead Podcast

The week is closing out with the US dollar rebounding from a low point not seen since April 2022. Derek Halpenny, Head of Research, Global Markets EMEA & International Securities, discusses with Michael Owen, Head of Global Client Desk EMEA, about what drove the dollar to the lows this week and what lies ahead for the dollar.
Derek also discusses the outlook for the pound ahead of a busy week of economic data that will shape expectations for the BoE MPC meeting in May. 
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