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Will the ECB slow down bond purchases?
The European Central Bank could regain emergency stimulus soon this week as inflation surged as the eurozone economy recovered from the Covid pandemic.
Investors have Already started Pricing the possibility of a “taper” of ECB asset purchases following a series of public comments by policy makers suggests that such a move may be on Thursday’s meeting card. For over 10 years.
Barclays Chief European Economist Silvia Aldagna hopes the ECB will reduce its monthly bond purchases under the Pandemic Emergency Purchase Program (PEPP) from the current € 80 billion to € 70 billion. He said he was. Aldagna also expects the central bank to raise its growth and inflation forecasts.
Still, the ECB wants to avoid sending “hawkish” signals by taking such steps, Ardagna argues. Unlike the Federal Reserve Board, which is expected to soon embark on a path to completely suspend asset purchases, investors will continue to have the ECB hold bonds under a pre-pandemic quantitative easing program after the dissolution of PEPP. I think I will continue to buy.
“I think the ECB Governor will show that the terms of the change to a broader monetary policy stance have not yet been seen. .. Also, the change to the PEPP program interprets that total asset purchases have begun to decline to zero. It should not be done, but should be interpreted as an adjustment of emergency measures for a significant improvement in growth and inflation outlook, “Aldagna said. Tommy Stubington
How do Beige Book insights affect the Fed’s tapering tempo?
On Wednesday, the Federal Reserve Board will publish the Beige Book, a qualitative report on the state of the US economy. This helps inform the central bank of its decision to begin reducing $ 120 billion in government debt purchases each month.
The Beige Book is a compilation of interviews conducted by each of the 12 Fed regional banks in the region. Of particular interest to market participants and the Federal Open Market Committee are insights into labor market trends and supply chain issues that are driving inflation this year.
The Federal Reserve Board said that “substantial further progress” towards an average inflation rate of 2% and maximum employment are two thresholds that the United States must meet in order for central banks to begin to curtail economic support. It states that it is a value. At the Jackson Hall Summit in August Powell said The first of those conditions was met.Monotonous Employment report On Friday, the second suggests that it is further away.
“The question is whether this report will provide the Fed with sufficient conviction to announce this year’s taper, and more importantly, maintain the forecast of two rate hikes in 2023. September meeting “. Matthew Misskin, co-chief investment strategist at John Hancock Investment Management, said.
Many investors usually rely on country quantitative data to inform their outlook and position, but this month the Beige Book could be more important than usual.
“Usually I like hard data and avoid these anecdotes, but given today’s situation … These anecdotes are the best way to determine if a supply chain crisis has been mitigated. Maybe, “said Tom Graph, head of the fixed income division of Brown Advisory.
“Hard data requires at least context and can sometimes be even deceptive in situations such as unprecedented supply pressures, labor shortages, and rapidly changing pandemics,” he said. Kate Dugit
Will the Australian Central Bank eventually raise interest rates?
It’s been 11 years since the Reserve Bank of Australia raised interest rates, and few expect it to fall at this week’s Governor’s Meeting.
Due to the surge in the housing market, some analysts wondered if the RBA could raise interest rates from historically lows. However, this is less likely with a new blockade to stop the Covid-19 epidemic. Neighboring New Zealand has delayed the widely expected rise in interest rates in August due to the rekindling of the Covid case.
Shane Oliver, chief economist at AMP Capital, said the deterioration in the economic outlook since the last RBA meeting strengthens the stance that rate hikes are a long way off. “At this point, interest rates aren’t much focused, as the RBA has been saying for some time that it won’t raise interest rates until’actual inflation stays within the 2-3 percent target range’. “The central scenario of the economy is that this condition will not be met by 2024,” he said.
However, there is debate as to whether banks will fulfill their desire to begin reducing bond purchases by about one-fifth. Su-Lin Ong, managing director of RBC Capital Markets, said the RBA has a “brief explanation” that moderately tapers the pace of purchases to around A $ 4 billion a week.
Others have predicted that the plan will be on the ice due to the worsening economic outlook. “We are very bearish on the Australian economy in the coming months and expect a weaker recovery than in 2020,” said Kim Mandy, senior economist at Commonwealth Bank. Nick Phildes
Will the ECB slow down bond purchases?
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