Recent U.S. economic data has dimmed hope for any near-term change in the Federal Reserve’s policy direction. Most think that the central bank will stick to its dovish stance at the upcoming mid-September meeting. Analysts suggest that the Fed may not be ready to pursue aggressive policy normalization just yet, leaving markets on edge as they anticipate further developments.
Indian Prime Minister Narendra Modi is already upending global markets with his radical proposals to reform India’s Goods and Services Tax (GST) system. This system was first introduced back in 2017. These boilerplate initiatives are designed to eliminate local tax code complexities, reduce consumption of detrimental goods, and are shifting consumption patterns around the country. At the same time in Europe, German bunds have lagged performance compared to US Treasuries, and higher bund yields reflect changing sentiment among investors.
US Economic Indicators Raise Questions About Fed Policy
Amidst a backdrop of mixed economic signals, the Federal Reserve faces challenges in determining its next steps regarding monetary policy. This comes as recent US economic data has pointed to a larger than anticipated increase in inflation expectations. One-year expectations soared to 4.9% from 4.5%, and five-to-ten-year expectations rose from 3.4% to 3.9%. These numbers will only add to the Fed’s challenges as they weigh the health of the labor market against inflation concerns.
Additionally, the NY Empire Manufacturing Survey came in with a strong -11.9 reading which was the strongest showing in nine months. Retail sales beat by a close to consensus 0.5% month-over-month, with June sales upwardly revised to 0.9%. Combined, these seemingly disparate data points paint a nuanced picture of the current US economy. Even with those highly encouraging signs, consumer confidence has been crushed. That’s contributing to Michigan’s Consumer Confidence Index dropping from 61.7 to 58.6, as folks are becoming much less positive about current conditions.
“buyers have the upper hand in this high supply market, so a tempting price is vital to agree a sale.” – Rightmove
Rightmove’s statement touches on the short- and long-term negative impacts troubling most industries. In the world of real estate, swiftly shifting market conditions are radically impacting how buyers act.
Indian GST Reforms and Their Implications
In India, Prime Minister Modi’s proposed reforms to the GST promise to replace a complicated, pyramidal structure of taxes with a simple, broad-based national VAT. The new framework will replace the current system with a simplified structure featuring three primary rates: a 5% rate for essential and common-use items, an 18% rate for standard goods and services, and a steep 40% rate for luxury and sin goods.
These changes are set to become operational near the time of the Hindu festival of Diwali in October. Such timing would be a smart move to boost consumption as consumers get in the mood for festive spending. Analysts will be closely watching to see how this reform affects the level and type of economic activity, as well as overall public sentiment in the months ahead.
European Markets Experience Fluctuations
European markets are showing a counterpart mixed bullish/selling mission, with German bunds underperforming US Treasuries. Yields have surged up and down the curve. The two-year bunds were up 2.7 basis points and the thirty-year bunds were up 8.3 basis points. These changes indicate that investors are starting to reset their forecast of where interest rates are headed in the future.
Overall in August asking prices fell by 1.3% month-over-month, with the average price in the UK property market falling to £368,740. Still, this figure represents a modest increase of just 0.3% over last year’s estimates. The Rightmove report reflects the reality that, because of the high supply conditions, buyers have greater negotiating power right now.
As stakeholders in the real estate ecosystem learn to read the new playing field, they will have to re-imagine their playbooks. Fundamentals of supply and demand remain the only manual guiding decision-making across jurisdictions and sectors.