Marking Time Ahead of Powell Press Conference

September 22, 2021

The FOMC is expected to confirm that tapering of its bond purchase program will begin in the fourth quarter. The announcement by the Fed and release of updated economic forecasts will be made at 14:00 EDT (18:00 GMT), followed by Chairman Powell’s press conference at 14:30.

Earlier today, the Bank of Japan Board wrapped up its two-day policy review and decided by an 8-1 vote not to change its settings with Kataoka once again dissenting in favor of greater stimulus. The current policy framework anchored around a -0.1% short-term interest rate target, considerable quantitative stimulus, and a 10-year JGB yield objective of “around zero percent” was initially launched five years ago this month. No policy change had been anticipated, particularly in light of the planned Liberal Democratic Party leadership vote on September 29th that will determine the successor to Prime Minister Suga. The BOJ Board after deliberating for four hours 23 minutes over two days kept the same essential economic assessment that sees continuing severe conditions n “due to the impact of the novel coronavirus (COVID-19) at home and abroad” but retains confidence in gradual recovery “with the impact of COVID-19 waning gradually, mainly due to progress with vaccinations, and supported by an increase in external demand, accommodative financial conditions, and the government’s economic measures.” Once continuing disappointment is the stagnant performance of personal consumption. There is an outstanding promise to augment easing if necessary should the expected improvement not materialize. Inflation is hovering near zero percent but projected to climb closer to target in line with strengthening demand.

Also as expected, the People’s Bank of China‘s one-year and five-year prime loan rates were kept at 3.85% and 4.65% where such have been since cuts in April 2020. One timely comment today by Bank of Japan Governor Kuroda at his post-meeting press conference was his belief that the financial troubles of China’s second largest real estate developer, Evergrande, will remain confined to China and not spread out to a global problem.

In market action, the dollar is unchanged in weighted terms, with a dip of 0.1% against the euro and Swiss franc but rises of 0.2% versus sterling and the yen. The 10-year U.S. Treasury and Japanese JGB yields are likewise flat, while comparable German bund and British gilt yields have ticked a basis point lower. U.S. stock futures are firmer. Japan’s Nikkei slipped 0.7%, and Taiwan’s stock market tumbled 2%. The British Ftse and Paris Cac have advanced over 1.0%. The price of WTI oil rose 1.6%; that of gold slid 0.3%.

In contrast to the keen market focus on today’s central bank developments, released data have been comparatively inconsequential.

Consumer confidence in September strengthened to a 2-month high in the Netherlands, a 3-month high in Turkey and a 38-month high in Denmark.

Dutch household spending recorded a fourth straight year-over-year advance in July but the smallest in that sequence at 4.8%.

Irish wholesale prices fell 0.8% in August but recorded their smallest 12-month decline in 18 months.

South African CPI inflation accelerated 0.3 percentage points to a 2-month high of 4.9% in August.

Industrial sales in Italy rose 0.9% on month in July but posted the smallest 12-month advance (19.1%) since February.

The Swiss current account surplus of CHF 10.508 billion last quarter was 3-1/3 times wider than the surplus in the second quarter of 2020.

The Covid infection rate of the United States has slowed somewhat, but typical of the lagged response in deaths, yesterday’s death toll of 2046 (some 30% higher than two weeks ago) represented a still cresting pace.

Still to come: U.S. existing home sales and the central bank announcements from the Federal Reserve and Central Bank of Brazil.

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

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