Sat, Dec 04, 2021 @ 18:04 GMT

Fed’s Beige Book: Outlook generally positive for the coming months

    Fed’s Beige Book noted that outlook generally was “positive for the coming months” with expectations of “continued modest growth”. Though, there were “widespread concerns about the possible negative impact of trade-related uncertainty”.

    Employment grew at a “modest pace” but “slightly slower” than previous reporting period. Compensation grew at a “modest-to-moderate pace” but some contacts “emphasized significant increases in entry-level wages”.

    Rate of price inflation was “stable to down slightly” from prior period. Districts generally saw “some increase in input costs, stemming from higher tariffs and rising labor costs”. However, the ability to pass on to final prices was “restrained by brisk competition”.

    Full report here.

    Japan government upgrades fiscal 2021 GDP growth forecast to record 4%

      Japan’s government upgraded fiscal 2021 (starting in April) GDP growth forecast to 4.0%, up form July estimate of 3.4%. If realized, that would be the largest expansion since data became comparable in 1995. Also, real GDP in March quarter of 2022 would be around the pre-pandemic level in December quarter of 2019.

      The government’s newly approved JPY 74 trillion policy package would “underpin the economy and boost private demand such as capital expenditures”, said a Cabinet official.

      Policymakers need to keep a close watch “on downside risks to the economy in Japan and overseas from the pandemic and impacts from moves in financial capital markets,” he added.

      BoC kept rate at ELB of 0.25%, expects strong Q2 rebound

        BoC left overnight rate at “effective lower bound” of 0.25% widely expected. Bank rate and deposit rate are held at 0.50% and 0.25% respectively. It will continue with the QE program with CAD 4B per week. BoC expects no rate hike until into 2023, while QE will continue until recovery is “well underway”.

        Globally BoC said “the arrival of effective vaccines combined with further fiscal and monetary policy support have boosted the medium-term outlook for growth”. Global GDP growth is projected to average just over 5% in 2021 and 2022, then slow to 4% in 2023.

        For Canadian, Growth in Q1 of 2021 is now “expected to be negative” due to resurgence of coronavirus infections and lockdowns. Though, BoC expects a “strong second-quarter rebound” assuming that restrictions are lifted later in Q1. It projects Canadian economy to growth 4% in 2021, almost 5% in 2022, and around 2.5% in 2023. Canada CPI is expected to rise temporarily to around 2% in H1 and return sustainably to 2% target in 2023.

        Full statement here.

        BoJ Kuroda: We will continue with our current monetary easing

          In an interview by Nikkei, BoJ Governor Haruhiko Kuroda said, “we will continue with our current monetary easing to support corporate funding, and stand ready to take additional easing measures without hesitation as needed.” He added that there is no plan to end the asset purchases or begin selling its holdings.

          Most candidates in the race to replace Yoshihide Suga as LDP leader and Prime Minister are pushing for another big pandemic relief package. Kuroda said, “even if fiscal policy becomes more aggressive, interest rates will remain low and help enhance the effect of fiscal policy.”

          “Even if fiscal policy becomes more aggressive, interest rates will remain low and help enhance the effect of fiscal policy,” he added.

          BoJ stands pat, new forward guidance indicates clear easing bias

            BoJ left monetary policy unchanged today as widely expected, but stepped up its signal for more easing ahead. Under the yield curve control framework, short term policy interest rate was held at -0.1%. Also, the central back will continue to increase monetary base at JPY 80T a year, with purchases of JGB to keep 10-year yield at around 0%. The decision was made by 7-2 vote, with Y. Harada and G. Kataoka dissenting as usual.

            The forward guidance was changed to: “As for the policy rates, the Bank expects short- and long-term interest rates to remain at their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost.” Previously, BoJ said its  committed to keep “current ultra-low rates for an extended period of time, at least until the spring of 2020.” It’s a clear message that BoJ is ready to cut interest rates again any time if outlook deteriorates further.

            At the post meeting press conference, Governor Haruhiko Kuroda confirmed that the new forward guidance aimed at clarifying the stance that “policy bias is leaning towards additional monetary easing.” Regarding the tools, BoJ could “cut interest rates, increase asset buying or accelerate the pace of increase in base money”.

            Full statement here.

            Fed Rosengren: More substantial job gains would imply tapering this fall

              Boston Fed President Eric Rosengren said yesterday if the US continues to have job growth like the last two months, with “very substantial payroll employment gains”, then by September meeting, the “substantial further progress” criteria should be met. That would “imply starting to taper sometime this fall”.

              “If you continue to purchase assets, the reaction primarily is in pricing, not so much in employment,” he added. “I don’t think asset purchases are having the desired impact on really promoting employment.”

              Johnson confirms he’ll vote for Brexit Withdrawal Agreement

                UK MP Boris Johnson’s tweets today confirmed he will vote for the Withdrawal Agreement even if it’s “very painful”. Ans in short, “a bad deal that we have a chance to improve in the next stage of negotiations must be better than those alternatives” of “worse version of Brexit or losing Brexit altogether.”

                Attorney General Geoffrey Cox said in the Brexit debates in the Commons that any Brexit deal will require Withdrawal Agreement to be approved today. And it’s the last chance for MPs to secure UK’s “legal right” to an Article 50 extension until May 22.

                Cox also said the government will agree to legislate to ensure MPs can vote to set the negotiating mandate for the next phase of the Brexit talks. Some MPs indeed see the next phase of trade agreement and future relationship as the most important.


                Japan Cabinet Office said exports increasing at a slower pace

                  In the October Monthly Economic Report, Japan’s Cabinet Office downgraded assessment on exports to “increasing at a slower pace”, from “continue to increase moderate”. That’s the first downgrade in seven months.

                  Overall, the economy is “picking up although the pace has weakened in a severe situation due to the Novel Coronavirus.” Private consumption “shows weakness further”. Business investment is “picking up”. Industrial production is “picking up”. Corporate profits are “picking up”. Employment situation “shows steady movements in some components”. Consumer prices show “steady movements”.

                  As the government lifted state emergency, it will “develop a new economic stimulus package” to address the issues of reopening. It expects BoJ to “pay careful attention to the economic impact of the infections and conduct appropriate monetary policy management”.

                  Full report here.

                  RBNZ stands pat, outlook remains highly uncertain

                    RBNZ left stimulatory monetary policy unchanged as widely expected, with OCR at 0.25% and  Large Scale Asset Purchase and Funding for Lending program unchanged. It maintained that to meet the requirements of sustainable 2% inflation and maximum employment will “necessitate considerable time and patience”. The committee is also “prepared to lower the OCR if required”.

                    The medium-term growth outlook was “similar” to the scenario presented in the February statement. Outlook remains “highly uncertain, determined in large part by both health-related restrictions, and business and consumer confidence.” The would be some temporary factors for near-term price pressures, including global supply chain disruptions and higher oil prices. But medium-term inflation and employment will “likely remain below its remit targets in the absence of prolonged monetary stimulus.”

                    Full statement here.

                    Fed Williams: Moderation of asset purchase pace may soon be warranted

                      New York Fed President John Williams said, “assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted.”

                      Williams expected the economy to grow between 5.5% to 6% this year. Inflation will drop back to 2% next year.

                      “There is still a long way to go before reaching maximum employment,” Williams said. “And over time it should become clearer whether we have reached 2 percent inflation on a sustained basis.”


                      BIS: Policymakers need to set a solid foundation for long-term growth

                        The Bank for International Settlement said in its Annual Economic Report that “swift and forceful action from central banks and governments has limited the economic damage from the Covid-19 pandemic”. But in the coming year, “issues such as corporate insolvencies and capital and labour reallocation will come to the fore.”

                        Agustín Carstens, General Manager, said: “The whole world entered this crisis suddenly and as one, but the exit is proving to be slower and staggered. While the recovery has been faster and stronger than anyone would have imagined a year ago, we are not out of the woods yet. Policymakers need to carefully manage the risks arising from this economic and policy divergence and set a solid foundation for long-term growth.”

                        He added: “As we exit the pandemic, we see higher public debt, lower interest rates and larger central bank balance sheets. Normalising monetary and fiscal policy over the longer term will provide a necessary safety margin to cope with unexpected events such as the pandemic or future recessions. And securing a durable recovery will require addressing the more lasting consequences of the pandemic.”

                        Full release here.

                        Germany PMI composite finalized at record 62.4, rising costs look to remain a feature

                          Germany PMI Services was finalized at 61.8, up from June’s 57.5, surpassing previous record high set some 15 years ago. PMI Composite rose to record high of 62.4, up from 60.1. Markit said there was record expansion in activity as COVID-19 restrictions eased. Rate of job creation hit new record. Inflationary pressures remained elevated.

                          Andrew Harker, Economics Director at IHS Markit said: “The recent surge in activity in the German service sector continued in July, with growth hitting the highest in more than 24 years of data collection as companies feel the benefit of the reopening of the economy following the lifting of COVID-19 restrictions. The ramping up of activity is also proving to be good news for workers, with companies taking on extra staff at an unprecedented rate.

                          “Inflationary pressures remain elevated, however, and companies will take little solace from the fact that costs rose at a slightly weaker pace than in June. With the sector running hot and severe pressure on capacity signalled, rising costs look set to remain a feature in the near-term at least.”

                          Full release here.

                          US initial jobless claims dropped -19k to 234k

                            US initial jobless claims dropped -19k to 234k in the week ending February 2, above expectation of 220k. Four-week moving average of initial claims rose 4.5k to 224.75k.

                            Continuing claims dropped -42k to 1.736M in the week ending January 26. Four-week moving average of continuing claims rose 4.25k to 1.741M.

                            Full release here.

                            BoE press conference live stream


                              France PMIs: Softer growth in July dents hopes of swift recovery to long-run rate

                                Franc PMI manufacturing dropped to 50.0 in July, down from 51.9, missed expectation of 51.6. PMI services dropped to 52.2, down from 52.9, missed expectation of 52.8. PMI Composite dropped to 51.7, down from 52.7.

                                Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                                “Following a seven-month high in June, growth of the French private sector eased at the start of the third quarter. The slowdown was driven by softer new order growth, as sales at manufacturers slipped back into contraction territory at a time of ongoing geopolitical tensions.

                                “Notably, the rate of expansion in overall business activity remains historically subdued and far weaker than the averages registered during 2017 and 2018. Moreover, softer growth in July dents hopes of a swift recovery to the long-run rate, which were beginning to materialise after June’s solid performance.”

                                Full release here.

                                Fed Evans: We have to be patient and bolder on inflation

                                  Chicago Fed President Charles Evans said, “we are going to have to go months and months into the higher inflation experience before I’m going to even have an opinion on whether or not this is sustainable or not, and that’s going to be uncomfortable.”

                                  “We really have to be patient and be willing to be bolder than most conservative central bankers would choose to be if we are going to actually get inflation expectations to move up in a sustainable fashion,” he added.

                                  ECB Schnabel: Monetary policymakers need to focus on the entire range of possible outcomes

                                    ECB Executive Board member Isabel Schnabel said in a speech, “inflation will remain higher for longer than previously anticipated”. In will “decline over the course of next year”, but, “uncertainty has increased around the pace and extent of the slowdown”.

                                    “In such situations of elevated uncertainty, monetary policymakers need to focus on the entire range of possible outcomes to ensure that they will be able to deliver on their mandate,” she added.

                                    “On the one hand, this means avoiding the mistake of a premature tightening of monetary policy in response to a temporary and possibly short-lived inflation spike. ”

                                    “On the other hand, it means keeping a watchful eye on the upside risks to inflation that financial markets currently anticipate and retain optionality to be able to act if needed, so as to maintain trust in our determination to defend price stability in a symmetric way and prevent a deanchoring of inflation expectations in both directions.”

                                    Full speech here.

                                    Trump: China trade deal could happen sooner than you think

                                      Trump indicated that US and China are “having some very good conversations” on trade. And China want to make deal “very badly” and “it could happen sooner than you think.” He added that’s “because they’re losing their jobs, because their supply chain is going to hell and companies are moving out of China and they’re moving to lots of other places, including the United States.” Additionally, China is “starting to buy our agricultural product again… starting to go with the beef and all of the different things, pork, very big on pork.”

                                      The comments came just a day after Trump’s harsh criticism on China at the United Nations General Assembly. He said “not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale”. And, “as far as America is concerned, those days are over.”