Archives of “May 2021” month

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BOE leaves bank rate unchanged at 0.10%, as expected

  
  Analysis

BOE announces its latest monetary policy decision – 6 May 2021

  • Prior 0.10%
  • Bank rate votes 0-0-9 vs 0-0-9 expected
  • Gilts purchases £875 billion
  • Corporate bond purchases £20 billion
  • Total asset program £895 billion (unchanged)
  • UK GDP expected to have fallen by ~1.5% in Q1, less weak than previously assumed
  • GDP is expected to recover strongly to pre-COVID levels over the course of this year
  • After 2021, the pace of GDP growth is expected to slow as transitory factors wane
  • Inflation is projected to rise to close to the target in the near-term
  • In the central projection, CPI inflation rises temporarily above the 2% target towards the end of 2021, owing mainly to developments in energy prices
  • These transitory developments should have few direct implications for inflation over the medium-term
  • Does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably
  • Full statement
  • Forecasts UK GDP growth at 7.25% in 2021, 5.75% in 2022
  • Forecasts UK CPI at 2.31% in one year’s time; previously 2.07%
  • Monetary policy report
The economic forecasts are upbeat and the BOE steered clear of any firm messaging about tapering although they are talking about slowing down QE purchases.
BOE chief economist Haldane voted to reduce the stock of QE purchases and there is also a technical change in which the BOE is slowing the pace of weekly bond purchases.
However, they reaffirm that “as measured by the target stock of asset purchases, that stance remains unchanged”. Adding that the slowing in terms of QE purchases is not a significant change in policy and they are ready to step it up if necessary.
The pound is dragged lower as cable falls to 1.3860 from around 1.3900 earlier going into the meeting and has now bounced back to 1.3900.
There was a bit of a delay between the statement (which offered nothing) and the monetary policy report (which had more details), hence the pound suffered a whipsaw as it fell from 1.3900 to 1.3860 before recouping losses to bounce higher to 1.3930.

Japan reportedly to decide on use of AstraZeneca, Moderna vaccines on 20 May

  
Analysis, COVID-19

NHK reports on the matter

The vaccine rollout in Japan is lagging dramatically as the only approved vaccine so far has been Pfizer’s vaccine. As of 29 April, just over 995,000 persons (0.8%) have been fully vaccinated in Japan with roughly only 2% of its population having received at least one vaccine dose. Those are rather poor statistics to say the least and does not make for an optimistic narrative that the country could break free of the virus cycle for now.

Sterling faces a double combo of risks today

  
Analysis, Forex

The BOE and UK local elections are the two event risks to watch

UK

The BOE could make an announcement to taper QE purchases later in the day, though there is some expectation that they may put that off until June or perhaps even August. That said, they could still tee that up with a more hawkish tone this time around.

Meanwhile, the area to watch in the UK local elections is in Scotland and whether Nicola Sturgeon’s SNP will be able to garner a majority to potentially push forward with the agenda of a second Scottish independence referendum.
The main risk for the pound is if the BOE turns out more dovish than expected and fails to tick the boxes in terms of setting up expectations of a taper to follow and the SNP winning a majority in the local elections.
That said, I would expect dips to be bought with worries on the Scottish independence referendum likely to be phased out over time while the market continues to keep a firm focus on the more structural undertones in the pound.
The BOE may put off any taper or tightening talk this month but will inevitably have to address that by August at the latest as the economy reopens in a more meaningful way.

Germany reports 21,953 new coronavirus cases, 250 deaths in latest update today

  
  Analysis

The 7-day incidence rate falls further to 129.1

Germany
The virus situation is showing signs of plateauing in Germany and the positive news is that the 7-day incidence rate is continuously falling over the past week or so. Total active cases is seen easing slightly to ~282,100 as of the update today.
The lower infection rate is definitely welcome and could be a signal that vaccinations are starting to take effect, but there is still some ways to go.
Medical capacity remains stretched, as there were 4,838 (-117) virus patients requiring intensive care as of yesterday with there being just 2,711 (11%) intensive care beds still available. The latter figure holds some added significance in that sense.

 

Germany

Goldman Sachs see lower iron ore prices ahead, will be a negative for AUD

  
  Analysis

Goldman Sachs with a longer outlook on the AUD (12 months),m this via eFX

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  • “In addition to potentially lower front-end pricing, weaker iron ore prices may weigh on AUD/USD. Despite their recent surge, our commodity strategists expect that iron prices will fall over the next 12”
  • “Despite generally rising commodity prices, Australia-specific factors may continue to hold back AUD/USD vs other USD crosses. Most importantly, the OIS curve substantially over-prices our expectations for policy rates, and our rates strategists now see a sufficiently compelling case to own the Aussie front end” 
Just to repeat, GS see iron ore lower over 12 months. Chinese markets have reopened today after a break on Monday, Tuesday and Wednesday and commodities are doing a catch-up surge.
Goldman Sachs with a longer outlook on the AUD (12 months),m this via eFX 

AUD took a hit lower on China suspending its Strategic economic dialogue with Australia

  
Analysis, Forex

Australia has been calling out China on its human rights abuses.

China has taken a petty revenge today with:
  • China’s state planner will suspend China-Australia economic dialogue

The Australian dollar took an immediate hit lower, China is a huge export destination for Australia’s iron ore:

Australia has been calling out China on its human rights abuses. 
As a bit of an explanation, the Strategic economic dialogue with China is aimed at strengthening Australia’s economic and trade relationship with Chin:
  • growing trade and investment with China
  • opportunities for Australian and Chinese businesses to cooperate
  • further increasing trade and investment with China will drive economic growth in both countires
China’s NDRC (the CCP state planner) has thrown this away for political recrimination reasons.

BOJ March monetary policy meeting minutes – full text

  
  Analysis
#  #  #  #  #  #  #  #  #

Bank of Japan Minutes not shedding too much further light on policy deliberations

Headlines via Reuters:

 

  • members agreed YCC exerting intended policy effect
  • some members said review confirmed some fluctuations in bond yields won’t diminish impact of monetary easing
  • some members said must scrutinise financial system developments due to accumulating side-effects of easing on banking system
  • members agreed BOJ must respond flexibly, effectively without hesitation to changes in economic, price and financial developments
  • a few members said appropriate to stress anew that excessive falls in super-long bond yields could hurt economy in long run

 

 

The full text is here if you wish

 

Bank of Japan Minutes not shedding too much further light on policy deliberations

Brazil raises benchmark lending rate 75 basis points to 3.50%

  
  Analysis

Banco Central do Brasil hikes the benchmark rate, as expected

 

  • the policy decision was unanimous
  • sees another policy adjustment of same magnitude at next meeting
  • reaffirms commitment to “partial normalization” process
  • elevated fiscal risk continues to create upward asymmetry to the balance of inflation risks
  • current inflation shocks are temporary, but will continue to closely monitor their evolution
  • uncertainty about economic growth remains larger than usual, but normality should return gradually
  • 75 bps rate hike at next meeting depends on the evolution of economic activity, the balance of risks, inflation outlook and expectations
  • adjustment is compatible with inflation converging to target over the relevant horizon, which includes 2022

 

The summary above is via Reuters, bolding is mine. BCB sees the rise in inflation as temporary but is hiking anyway ….the BCB is not a global trend setter for major central banks, but makes ya think ….

Banco Central do Brasil hikes the benchmark rate, as expected 

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