Marking Time as Drama at Jackson Hole and Kabul Unfold

August 26, 2021

The St. Louis and Kansas City Federal Reserve District presidents, who represent predominately Republican regions of the United States, publicly expressed their personal desires to see quantitative tapering begin this autumn, and Bullard of St. Louis added his hope that an interest rate hike be done before the end of 2022. The annual central banking symposium at Jackson Hole, Wyoming, has begun, but the most awaited event there — Chairman Powell’s speech, doesn’t transpire until tomorrow.

Meantime, published minutes today from last month’s policy meeting at the European Central Bank reveal that the reformulated inflation mandate was approved unanimously and intended to fortify the credibility of the Board’s intent to lift inflation closer to 2.0%. The modified guidance should not be interpreted as implying a changed likely path of the central bank’s interest rates, however.

There has been an explosion outside the airport in Kabul, Afghanistan, presumably meant to impede the evacuation of people who aided the American military intelligence there of which there remain many. The deadline is end-August for a full departure of U.S. military  personnel.

The first major Asian central bank rate hike of the pandemic era has occurred. The Bank of Korea’s base rate was lifted 25 basis points to 0.75% from a record low of 0.50%. The rate remains 50 bps below its pre-pandemic level, and today’s decision was made in spite of a single dissent to leave such unchanged. Officials are concerned about rising Korean household debt and confident that economic recovery will continue at a respectable pace. ” Core inflation (excluding changes in food and energy prices from the CPI) has run at the lower-1% level. The inflation expectations of the general public have risen to the mid-2% level. It is forecast that consumer price inflation will increase to the lower-2% level this year, exceeding the May forecast of 1.8%. Core inflation is forecast to run at the lower-1% level.” Assessed risks to Korean growth and inflation due to the Covid pandemic will affect the timing of future rate hikes.

Until the Powell speech on Friday, investors seem predisposed to marking time.

The dollar rose overnight by 0.2% against the DXY weighted index. Individual increases were led by advances of 0.7% against the Swiss franc and 0.5% versus the Japanese yen, but the dollar/euro is unchanged. The U.S. currency is up 0.2% against the loonie, yuan, and peso and 0.1% relative to sterling but flat against the Aussie dollar.

Ten-year U.S., German and British sovereign debt yields have edged a basis point higher. WTI oil slid back 1.5%, while gold‘s price is little changed.

Key U.S. equity indices also have hardly moved in contrast to drops in Asian share prices of 1.1% in China and Hong Kong, 0.9% in Indonesia and 0.6% in South Korea. European stock markets have fallen around 0.4%.

Calculated U.S. GDP growth in the second quarter was revised up by an marginal 0.1 percentage point to 6.6% at an annualized rate. Robust personal consumption alone augmented GDP growth by 7.8 percentage points, and non-residential business investment lent a further 1.2 percentage points of positive support, but net exports, inventories, housing, and government spending each made negative  quarterly contributions to GDP. Real GDP was 16.2% greater than a year earlier, and the year-on-year advance of the core PCE price deflator doubled to 3.4% from 1.7% in the first quarter. 9.7% growth in corporate profits was consistent with the continuing buoyancy of the stock  market.

New U.S. jobless insurance claims rose last week for the first time since the week of July 17, but the 353k total was just 4k greater than  in the prior week and thus didn’t prevent its four-week average from moving still lower.

German consumer sentiment fell to a 3-month low in September. The GFK-compiled index, -1.2, was negative for a 17th consecutive month but still well above the reading of -15.5 last February.

A recent trend to lessening M3 money growth in the euro area was extended in July to 7.6% from 8.3% in June and 8.7% in the second quarter. On-year growth in credit slowed to 6.0%.

French business sentiment among manufacturers improved to a 39-month high in August. However, due to weakened optimism in services and retail caused by the Delta Variant, overall business sentiment dropped to a reading of 110 from 113 in July and 114 in June.

July price data releases this Thursday revealed a 0.2 percentage point slowdown in Japanese corporate service price inflation to 1.1%, a 0.6 percentage point drop in South African producer price inflation to 7.1%, but a 3.9 percentage point in Swedish producer price inflation to 13.5%.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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