Financial News & Analysis

BoE's Broadbent says he thinks conditions for a rate rise have been met, but need to focus on medium term

BoE's Ramsden says necessary but not sufficient condition for a rate rise have been met

BoE's Bailey says he thinks minimum conditions for a rate rise have been met, but not sufficient for one

BoE's Tenreyro says she does not think guidance conditions for a rate rise have been met

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BoE's Bailey says persistence of COVID means there has not been expected rebalancing of demand between goods and services, pushing inflation higher than expected

• Semiconductor shortage has led to shortage of new cars and pushing up second than car prices as well in UK.
• Higher than anticipated inflation underlines persistence of COVID.
• Overall economic impact of COVID in UK has attenuated.
• Seeing some short-term levelling off of recovery.
• Do not think inflation will be persistent.
• Think it is unlikely commodity prices will continue to rise.
• Expect supply bottlenecks to sort themselves out.
• Large concern is getting labour market vacancies filled.
• End of furlough scheme should help fill vaccines.
• He has a bit more concern regarding persistence of labour market pressures.
• Risks on both sides to inflation returning to target over medium term.
• Market curve does point to some increase in interest rates.

GBP Going UP 20 pips on news reaction

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The BoC leaves its Overnight Rate unchanged at 0.25% as expected, rate of QE unchanged as expected; forward guidance unchanged as expected

• The Bank continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery.
• Reiterates "The Governing Council judges that the Canadian economy still has considerable excess capacity"
• "We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective."
• "In Canada, GDP contracted by about 1 percent in the second quarter, weaker than anticipated in the Bank’s July Monetary Policy Report (MPR)."

  CAD is going in red worst performance from all currencies with -0.29% today

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Fed's Bullard (2022 voter) says Fed should proceed with tapering despite the weak US jobs data, while he dismissed concerns the rebound in the labour market was faltering and said there is plenty of demand for workers. USD strength after comments

• Note Bullard is the first Fed official to speak following Friday's NFPs.
• Headline nonfarm payrolls disappointed expectations in August, printing 235k (exp. 750k); the unemployment rate fell by 0.2ppts, in line with the consensus, to 5.2%. Other measures of slack improved in the month, with the U6 rate of underemployment falling to 8.8% from 9.2%, the employment-population ratio, which is a metric that is closely watched Fed officials, rose to 58.5% from 58.4% (vs pre-pandemic 61.1%), although the participation rate, which the Fed also factors into its deliberations, was unchanged at 61.7%. The wages data saw average hourly earnings rising +0.6% M/M (exp. +0.3%), lifting the annual rate to 4.3% (from 4.1%); average workweek hours declined a little to 34.7hrs from 34.8hrs. Analysts noted that the lower than consensus headline was hinted at by several proxies, including the Homebase Survey, the ISM survey data (only manufacturing was available ahead of the NFP report), as well as the Conference Board's gauge of consumer confidence, which all gave the impression that Delta fears were contributing to labour market tightness. Ahead, Pantheon Macroeconomics is expecting further weakness in the September data too, and is also flagging concerns over the prospects of an October revival, given that labour market behaviour lags cases, and PM says cases are yet to peak. "Before Delta, we were looking for 1M-plus payroll gains in the fall, but that’s now going to be a real struggle, suggesting that Chair Powell will be in no hurry to be pushed into tapering while the labor market picture so uncertain," Pantheon writes, "we think the announcement comes in December, but the FOMC could easily be forced to wait until January." Meanwhile, many have been looking for evidence that the inflation upside in recent months was more persistent than the Fed was acknowledging, and were looking for this evidence within the wages metrics (the idea is that Americans would begin to demand higher compensation amid rising price pressures, which could feed into a loop of inflation becoming more persistent). While this month's data may allude to that theme, Pantheon warns that while the +0.6% M/M jump is startling, "it overstates the trend because the data are not mix-adjusted, so a month with no net job gains in the low-paid leisure and hospitality sector will see a bigger increase in AHE than a month with more even payroll growth." Even so, the consultancy notes that wage gains have averaged +5.8% Y/Y in the three-months to August vs the previous three months, and while it is high, PM argues that "this ignores the idea the faster productivity growth potentially raises the Fed’s tolerance for faster wage growth; ultimately, what matters is unit labour costs, which remain contained."

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• The Board's decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak.
• This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay, but not derail, the recovery.
• The Board is committed to maintaining highly supportive monetary conditions to achieve a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.
• This bounce-back and it is likely to be slower than that earlier in the year.

Note, one of the major newswires reported the QE decision as a "hold", although the official RBA release states "purchase government securities at the rate of $4 billion a week and to continue the purchases at this rate until at least mid February 2022."

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Goldman Sachs lowers Q4 2021 GDP growth forecast to 5.5% from 6.5% and sees 2021 GDP growth at 5.7%, while it raised Q4 2022 GDP to 3.7% from 3.0% and sees 2022 GDP growth at 4.6%.

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The NFP US jobs report covering August was down too much below expectation. Most Affected domain was retail and leisure/hospitalitysectors.COVID fear is again keeping people home but also another cause is laborsupply issue because wages are up.·  Payrolls grew just 235,000 in August &unemployment rate fell to 5.2%.·  The leisure/hospitality sector had no net jobincrease and retail employment fell, yet businesses in those segments are stilltrying to hire.  ·  Similarly, construction lost jobs because ofmaterials shortages and increased price in transports ·  Strong wage growth and rising participation are notrelevant since labor demand is lower.·  The labor force participation rate was unchangedat 61.7DollarINDEX is DOWN, Stocks down and, Gold Up

Stocks open subdued across the board as August failed to follow up from July’s solid NFP report – note a recent uptick in the NDX. The below forecast range 250k US jobs added in August has hit risk sentiment, seeing stock futures reverse earlier strength (particularly Russell 2k), with a pause in jobs added in the Hospitality and Leisure sector suggestive of some Delta-induced reopening roadblocks, although one could argue that is “transitory”   Stock Markets are all time high this week ignoring the danger of Tapering this Year.  Monday markets are closed and we expect reactions on Tuesday.

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• China's Cabinet says China will accelerate measures to attract overseas investors in domestic futures trading;
• China will establish international Yuan-denominated commodity futures market;
• China will launch pilot schemes for IP rights securitisation

Who will invest in a market with companies controlled by Govern, take a look!

https://www.bloomberg.com/news/articles/2021-03-21/china-s-crusade-against-risk-is-tormenting-financial-markets

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Japanese PM Suga is to step down as PM, according to Kyodo.

As a reminder, there were comments yesterday from Japanese LDP leadership contender Kishida that they need to swiftly conduct economic measures worth tens of trillions of yen to cope with the virus pain and that they need to implement business continuation support including payouts to households and businesses. Furthermore, he said they will provide cash payouts to non-regular workers, women and households with children that are facing a difficult situation due to the virus. (Newswires)

JPY UP with 15 pips

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Australia's New South Wales reports 1,431 locally transmitted COVID-19 cases and the state Premier says expects next two weeks to be the worst for COVID infections.

New Zealand reports 28 new COVID-19 cases much lower than Australia.

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Asian equity markets traded cautiously as participants digested disappointing Chinese PMI data and with a non-committal tone seen at month-end following the mixed handover from US, where the S&P 500 and Nasdaq extended on record highs led by growth and tech although cyclicals and financials lagged amid a lower yield environment

• Chinese NBS Manufacturing PMI (Aug) 50.1 vs. Exp. 50.2 (Prev. 50.4)
• Chinese Non-Manufacturing PMI (Aug) 47.5 vs. Exp. 52.0 (Prev. 53.3)
• Chinese Composite PMI (Aug) 48.8 (Prev. 52.4)

China's securities regulator is planning to impose more control regarding private equity funds and will not permit public offerings masked as private equity, while China is also reportedly to curb unordered capital expansion in entertainment.

(NEWSWIRE)

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Australia's Victoria State Premier says it is too soon to open up from the COVID-19 lockdown and would need a low number of cases to ease restrictions, adds reopening plan to be announced tomorrow but it is not freedom day and will only be modest changes.

Australia's capital of Canberra will extend lockdown through September 17th.

The EU voted to approve fresh restrictions on US travellers coming into the bloc. US State Department raised the travel alert for Germany and Canada to level 3, while the US also issued COVID-19 "Do Not Travel" advisories for Switzerland and Estonia.

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ECB's Villeroy says that France and the EZ should be back to pre-COVID levels in early 2022 or maybe before this

• No risk of higher inflation at this stage
• PEPP will remain until at least March 2022; not urgent to decide on it at the September gathering
• Financing conditions have improved since June

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Oil producers have shut-in 95.65% of US Gulf of Mexico crude output totalling 1.74mln bpd and 93.75% of natgas production, while the Colonial Pipeline announced it will temporarily shut fuel lines from Houston, Texas to Greensboro, North Carolina and Marathon Petroleum's Garyville, Louisiana refinery (556k bpd) was also shut down over the weekend. US President Biden said Hurricane Ida is life threatening with the devastation likely to be immense and beyond the coasts, while he added they are planning for the worst from the hurricane and that it would take weeks for some places to restore power following the hurricane. Furthermore, President Biden later declared a major disaster for Louisiana and Entergy announced that all of New Orleans had lost power due to catastrophic transmission damage from Hurricane Ida.

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Fed Vice Chair Clarida (voter) stated there has been clear progress on the labour market which is in agreement with Fed Chair Powell and he would support a taper if the labour market gains continue as expected, while he added that we will get a better read on the labour market this fall. (Newswires)

Fed's Waller (voter) said we have definitely made progress on inflation and that one more good jobs report will be sufficient to be able to start tapering. Waller added that he would like to start to taper early this fall and does not see a reason to wait, while he definitely would like to see MBS taped faster and would like to finish taper by mid-2022 to have the space to raise rates if required. (Newswires)

Fed's Mester (2022, 2024 voter) reiterated the Fed has basically met the criteria for tapering asset purchases and believes the Fed should use the September meeting to lay out thinking about the pace and timing of tapering and looks to end taper by mid-2022. Mester also noted that whether they start tapering in November or December, it is not going to make a material difference for the economy and reiterated that even if there is some pullback, she thinks the economy will remain strong. (Newswires)

Fed's Bullard (2022 voter) said he favours tapering treasuries by USD 20bln a month and MBS by USD 10bln a month. (Newswires)

White House forecasts budget deficit to reduce by USD 684bln in the next decade, while there were separate comments from White House Economic Adviser Bernstein that they need to keep pushing a robust recovery in the US. (Newswires)

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US Secretary of State Blinken held a phone call with Chinese Foreign Minister Wang in which they discussed Afghanistan and US-China relations, while Wang stated that China will engage with the US based on its attitude towards China. In relevant news, it was also reported that a senior Pentagon official held a discussion last week with the Chinese military for the first time under the Biden administration.

China began a two-month campaign to crack down on commercial platforms and social media accounts that post finance-related information deemed harmful to its economy. Furthermore, WeChat, Douyin, Kuaishou and Sina Weibo will begin rectifying irregular practices involving publishing financial information on their platforms in response to the latest crackdown by Beijing.

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US President Biden said Chinese officials have worked to prevent investigators from assessing origins of COVID-19 and that the US will work with partners to press China to share information. The US probe of COVID origins was reportedly inconclusive without help from China and found some evidence the origin could be from animals or a lab, while the intelligence community in US remained divided on the most likely origin.

US President Biden said they are considering starting booster shots earlier and he discussed a booster shot timeline with NIH's Fauci in which an additional shot after five months was reportedly being discussed, while the NIH launched a study of an extra COVID vaccine dose in people with autoimmune disease. However, the White House later stated that official guidance for a COVID booster shot remains eight months and that nothing has changed regarding the eight-month timeline.

New Zealand PM Arden confirmed that Auckland will remain on level 4 for another two weeks and all areas outside of Auckland will move to level 3 from a level 4 lockdown with the level 3 to be in effect for a week.

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