U.S. GDP, Monetary Policy Statements from ECB & Japan, and So Much More

October 28, 2021

Financial market activity overnight: The dollar and 10-year sovereign debt yields are little changed on this busy Thursday. Equities fell in Asia including losses of 1.2% in China, 1.0% in Japan, 1.2% in Indonesia, and 1.9% thus far in India. European share prices have risen a bit, however, and U.S. futures are also in the black. The price of West Texas Intermediate oil fell 1.2%, while that of gold firmed 0.3%.

U.S. real GDP growth in 3Q 2021 slowed to a five-quarter low of 2.0% on quarter at an annualized rate from a pace of 6.7% in the previous quarter. This deceleration was more pronounced than forecast and more than halved the rate on year-on-year economic expansion to 4.9% from 12.0%. All of the rise in GDP between 2Q and 3Q could be attributed to faster growth in inventories. Supply bottlenecks were reflected in a negative 2.3 percentage point contribution to GDP from personal consumption of goods. Total quarterly personal consumption growth slowed to 1.6% from 11.7% in the first half of 2021. Exports and residential investment both declined last quarter. The year-on-year rises of the PCE price deflator and core PCE were 4.3% and 3.6%.

New U.S. jobless insurance claims declined more than forecast to 281k from 291k. The four-week average has fallen from 340.5k in the week of September 25 to 299.5k in the ensuing four-week period.

Monetary policies were left unchanged at the Bank of Japan and European Central Bank.

The Bank of Japan retained targets of -0.1% on its short-term policy interest rate and “around zero percent” for the 10-year JGB bond yield, according to today’s statement. In the 8-1 decision, Kataoka again favored a more expansionary stance. Today’s meeting coincided with publication of the quarterly Outlook for Economic Activity and Prices in which projected core CPI inflation in the fiscal year ending March 2022 was revised downward by 0.6 percentage points to zero percent, and such is expected to climb only to 1.0% two years later. Projected growth is fiscal year was revised downward to 3.4% and is expected to decelerate in both of the ensuing two years. Quantitative stimulus will be continuing as before, and forward guidance remains the same, too: ” the Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner.” At his press conference BOJ Governor Kuroda put a positive spin on recent yen depreciation, claiming such to be orderly and aligned with fundamentals that are not as good in Japan as in other major Western economies.

The ECB kept its interest rate structure (a zero percent refinancing rate flanked by a -0.5% deposit rate and a 0.25% marginal lending facility rate) and didn’t change the quantitative elements of monetary stimulus, either. The Governing Council concedes that inflation will likely take longer to retreat into its target but expressed continuing confidence that the spike in prices reflects temporary factors and that a very stimulative stance is required to ensure that the target is not undershot in the long run. The full description of future policy remains as follows, yet analysts continue to anticipate that quantitative support will be throttled back by 2Q 2022.

In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.

Economic sentiment in the euro area improved to a 3-month high of 118.6 this month and not far from July’s record peak of 119.0. Sentiment in the industrial and services sectors also rose to 3-month highs, but improvement was much more pronounced in services than industry. Consumer sentiment was confirmed at the preliminary estimate, a 2-month low.

In Italy, economic sentiment in manufacturing rose to a 3-month high in October, but consumer confidence slipped back to a 2-month low after touching a record high in September. Spanish business confidence posted its best reading of 2021, but such was still below the record high reached 21 years earlier.

Greek business confidence rose to a 2-month high, but consumer confidence fell there to an 8-month low. Austrian business confidence and consumer sentiment reached 2-month highs in October. Business confidence rose to a 90-month high in Denmark and a 3-month high in the Netherlands this month.  In Sweden, business confidence in October climbed to a 3-month high, and consumer confidence, although dipping to a 7-month low, remained strong from an historical perspective. Portuguese consumer sentiment fell to a 2-month low, but business sentiment there, as in most other reporting economies of Europe, improved this month.

Among price data released today,

  • PPI inflation in South Africa rose to a 67-month high of 7.8%, more than double last December’s 3.0%.
  • Icelandic producer price inflation accelerated to a 65-month high of 13.2% in September.
  • Italian PPI inflation of 13.3% in September was the most since 1991.
  • Belgian consumer prices advanced 1.5% on month and a 156-month high 4.2% compared to a year earlier.
  • Malaysian producer price inflation of 12.3% in September was the most since October 2011.

Swedish real GDP rose 1.8% last quarter, twice as much as in the second quarter, and was 4.7% above the level one year earlier. Belgian real GDP coincidentally posted identical increases to Sweden — up 1.8% versus 2Q and +4.7% compared to 3Q 2020.

Japanese retail sales rebounded 2.7% in September after slumping 4.0% in August. Sales posted a smaller-than-forecast year-on-year drop of 0.6%.

Retail sales between September 2020 and September 2021 in Nordic Europe rose 4.8% in Sweden but fell 2.8% in Norway.

September retail sales in Ireland were 0.5% higher on month but 2.8% weaker versus September 2020.

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


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