Thursday Spotlight on Central Banks but Attention Also Maintained on Covid and Inflation

September 9, 2021

The dollar fell overnight by 0.3% against the Swiss franc and 0.6% versus sterling but remain unchanged on balance against the euro. Dips of 0.1% occurred against the yen and weighted DXY index.

Share prices are higher in the United States and Continental Europe but are down in Great Britain. Earlier in the Pacific Rim, stock markets dropped 2.3% in Hong Kong, 1.5% in South Korea, 1.9% in Australia and 0.6% in Japan.

Ten-year German bund and U.S.  Treasury yields have slid 3 and 1 basis points. Prices of oil and gold are marginally softer.

The European Central Bank left its -0.50% deposit rate, zero percent refinancing rate and 0.25% marginal lending facility rate unchanged. These record lows have been maintained since March 2016. But an initial step toward tapering quantitative stimulus was announced. While the overall size of the Pandemic Emergency Purchase Program (PEPP) stays at 1.85 trillion euros, a moderately lower pace of net asset purchases under the PEPP¬† will be undertaken next quarter, justified by “the slight improvement in the medium-term inflation outlook and the current level of financing conditions.” Today’s statement modified growth and inflation forecasts slightly but did not change other elements of policy such as forward guidance, asset reinvestment, regular asset purchases (APP) and the LTROs. Projected inflation in 2021 was bumped up to 2.2% from 1.9% estimated three months ago and forecasts of 1.5% made last March and 1.8% imagined at the December 2020 review. Projected CPI inflation in 2022 and 2023 of 1.7% and 1.5% remain below the symmetrical 2.0% medium-term target. Regarding growth, officials now see GDP advancing 5.0% in 2021, revised up from 4.6%, then 4.6% in 2022 (revised down from 4.7%) and 2.1% in 2023 (unchanged from the forecast made last June, March and December).

The National Bank of Ukraine‘s policy interest rate was raised for the fourth time this year. Today’s increase of 50 basis points matches the hikes done in July and March, while one in April was by a full percentage point. Altogether, the rate has been raised from 6.0% at the start of the year to 8.5% now. A released statement notes that inflation of 10.2% is twice the target of 5%, and officials aim to restore the target by next year. Although core inflation seems to have stabilized, inflation expectations are high, and wages are rising rapidly. GDP growth has picked up this quarter more quickly than assumed. Officials intend to end other pandemic support measures by yearend, and more interest rate hikes may become necessary.

Malaysia’s overnight policy interest rate has been kept unchanged at 1.75%, its level since a 25-basis point cut in July 2020 culminating 125 basis points of easing last year. Officials consider the current monetary policy stance to be appropriately accommodative. They anticipate continuing in-target inflation, and growth risks are still skewed to the downside because of Covid’s unpredictability.

The National Bank of Serbia‘s policy interest rate also was left unchanged after the latest review. In 2020, such was cut from 2.25% to 1.0% in four moves, the latest being done in December. Serbian GDP growth appears lately to have surpassed the central bank’s expectations, but inflation of 3.3% is well ensconced in a 1.5-4.5% target range.

Today’s assortment of inflation reports were mixed.

  • In China, consumer prices last month only ticked 0.1% higher, and the 12-month 0.8% rate of increase was the smallest since 0.4% in March. Both changes were smaller than forecast.
  • Chinese PPI inflation swelled half a percentage point to a 13-month high in August of 89.5%.
  • Irish CPI inflation climbed 0.6% in August, lifting the on-year comparison to a 123-month high of 2.8%. It had been zero percent as recently as March.
  • Mexican CPI inflation slowed 0.2 percentage points to a 5-month low of 5.59% in August.
  • Brazilian consumer prices shot up 0.9% in August, lifting on-year inflation to a 66-month high of 9.68%.

There were two encouraging U.S. developments. On the policy front, President Biden is seeking more comprehensive vaccine requirements for federal workers and contractors. On the data front, new jobless insurance claims last week dropped significantly more sharply than forecast. The weekly total of 310k and four-week average of 339.5k (down from 396.75k in the previous four weeks) were the lowest since March 14, 2020.

Germany’s current account surplus of EUR 17.6 billion in July was down from EUR 22.6 billion in June and EUR 20.2 billion in July 2020. However the seasonally adjusted merchandise trade surplus of EUR 17.9 billion was a third larger than June’s surplus as imports fell 3.8% and exports rose 0.5%.

South African factory output plunged 8.0% on month in July, most in fifteen months and was below its year-earlier level (by 4.1%) for the first time since January. On a brighter note, South Africa’s current account surplus of ZAR 3.43 billion in the second quarter was the fourth surplus in a row and fifth in the past six quarters, plus the largest in decades and equal to 5.6% of GDP.

Consumer confidence in Thailand fell to a record low in August as that country battles another wave of Covid.

U.S. Covid-related deaths yesterday again exceeded 1,500, and new cases dipped only a tad under 150k.

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

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