US inflation cooled in March — but don’t expect an end to rate hikes

Latest US inflation report provides a mixed picture: Headline US inflation fell to its lowest level in almost two years in March as energy costs continued to decline. The consumer price index rose by 5.0% during the month, down from 6.0% in February, according to data published by the Bureau of Labor Statistics (pdf) yesterday. The print came in slightly lower than expectations.

Yes, but: Core inflation continued to rise, suggesting that underlying price pressures remain sticky. Core CPI — which omits volatile food and energy prices — rose slightly to 5.6% from 5.5% in February, driven by higher rental costs. Hotter core inflation will likely put pressure on the Federal Reserve — which is trying to bring inflation back down to 2% — to continue raising interest rates next month, analysts told the business press. (Reuters| Financial Times| Bloomberg| WSJ)

Global interest rates may not be staying high for much longer: Central banks will likely lower interest rates to pre-pandemic levels once inflation is brought under control, the IMF has said. Monetary policymakers have in recent months engaged in the biggest wave of policy tightening in decades in an effort to curb soaring inflation. But in a blog post this week, the IMF said that the current spell of high borrowing costs will only be “temporary” as inflation fears abate.

The ‘when’ remains unclear: The Fund didn’t say when it expects rates to fall. In its latest World Economic Outlook (pdf) this week, the IMF said the economic picture remains highly uncertain, with core inflation still yet to peak in many countries. In short: interest rates may have to rise further before they start coming down.

No such relief in Egypt: The recent cycle of currency devaluations and higher inflationmeans that we’re unlikely to see any policy easing any time soon. The Central Bank of Egypt has hiked rates by 1k bps since last March and will likely have to raise them further in the coming months as pressure continues to build on the EGP.

Tougher banking controls needed to curb financial stress, says global financial regulator: The head of the Financial Stability Board (FSB) has called for tougher regulations to protect global banks amid signs that sharply higher interest rates are posing a threat to the global financial system. In a letterpublished last Wednesday, Klaas Knot said that the recent banking turmoil “provides important lessons for authorities,” and called on them to act. The letter was submitted to G20 finance ministers and central bank governors ahead of their meeting in Washington this week.

Also worth noting:.

• Prepare for a major reversal in US equities, says Wells Fargo: The US bank’s head of equity strategy expects the S&P 500 index to suffer a 10% correction in the next three-six months on the back of a deteriorating economic situation. This would take the benchmark index down to 3.7k points from 4.1k currently. (Bloomberg)
• That’s a ‘no’ from Ahli Bank: The board of directors of Oman’s Ahli Bank hasrejected Bank Dhofar’s non-binding merger proposal without providing a reason. (MSX disclosure, pdf | Bloomberg)

THE CLOSING BELL-

The EGX30 fell 1.6% at Wednesday’s close on turnover of EGP 1.91 bn. Foreign investors were net buyers. The index is up 14.7% YTD.

In the green: Oriental Weavers (+2.0%), Ezz Steel (+1.7%) and Credit Agricole Egypt (+1.4%).

In the red: Egypt Kuwait Holding-EGP (-9.2%), Eastern Company (-3.5%) and Fawry (-3.3%).