Cleveland Fed President Loretta Mester said she’s “comfortable with tapering some time this year”. She wanted it “completed by the middle of next year”. She added that there is “no need” for the kind of accommodation as “at the height of the crisis”.
Mester said she is watching “if one-off price increases become embedded in inflation expectations.” She is “very watchful” on the inflation side and she now thinks “it will be more prolonged”.
Philadelphia Fed President Patrick Harker said he’s “still supportive of moving the taper along”, because he didn’t think asset purchase is “doing a whole lot right now”. He added that Fed should finish tapering before considering raising interest rates.
He said the Fed has achieved “substantial further progress on inflation” already. There is “some evidence that inflationary pressure “may not be so transitory”. Meanwhile, the job market is changing the people’s thinking about what a job is has changed too.
US personal income rose 1.1% or USD 225.9B in July, well above expectation of 0.2%. Spending rose 0.3% or USD 42.2B, slightly below expectation of 0.4%.
Headline PCE accelerated to 4.2% yoy, up from 4.0% yoy, above expectation of 3.5% yoy. Core PCE was unchanged at 3.6% yoy, matched expectations. Energy increased 23.6% yoy while food prices rose 2.4% yoy.
Boston Fed President Raphael Bostic he’s “comfortable with an October timeline” for starting tapering if August job growth could match the near 1m number as with the previous two months. Also, once the tapering starts, he was “definitely looking to get this done as quickly as possible”, and put a full end to the asset purchases “toward the end of Q1” of 2022.
He also said that the spread of the Delta variant had not changed his economic outlook in any fundamental way. “What I have seen is some suggestion that things are slowing down, but they are still just slowing from extremely high levels. I have not seen big changes in the underlying dynamic,” Bostic added.
Australia retail sales dropped -2.7% mom in July, slightly better than expectation of -2.9% mom. Comparing to a year ago, sales also dropped 3.1% yoy.
Ben James, Director of Quarterly Economy Wide Surveys, said: “Lockdowns and stay-at-home orders in many parts of Australia continued to impact retail trade in July, with many non-essential retail businesses closing their physical stores. In particular, the first full month of lockdown in New South Wales, following the Delta outbreak in June, saw retail turnover in the state fall 8.9 per cent. This was the largest fall of any state and territory since August 2020.”
US stocks closed lower overnight as traders turned cautious, watching the development in Afghanistan and upcoming speech of Fed chair Jerome Powell at the Jackson Hole Symposium. A few Fed officials expressed their support for tapering asset purchases, somewhat talking down the impact of the spread of Delta. Yet, we’d note that those are known hawks already. Doves might come out today telling another story while Powell would likely sound non-committal. The overall Jackson Hole event would likely leave the market with nothing new on the net.
NASDAQ apparently faced some resistance from 61.8% projection of 10822.57 to 14175.11 from 13002.53 at 15074.39, and 15k psychological level. While it’s now in a retreat, there is no sign of reversal, at least before covering the gap made at weekly open. Nevertheless, it might still take some time to build the base to power through 15k at a later stage.
Dallas Fed President Robert Kaplan told CNBC that by and large, businesses are “weathering Delta at least as well as previous surges”. Businesses and consumers are learning to adapt well. There is no demand problem in the economy too.
He added that it would be “a lot healthier if Fed begins to wean economy off asset purchases”. Kaplan said he “would prefer to start taper soon but do it over plus or minus eight months, although I remain open-minded.” September meeting would remain his preference to announce tapering.
St. Louis Federal Reserve president James Bullard repeated his call for tapering to end asset purchase by the early next year, as “we don’t need the asset purchases at this point.”
“I think a lot depends on whether inflation going to moderate in 2022 or not. I’m a little skeptical that it is. I think we’re going to get at least 2.5% inflation in 2022, maybe higher than that and there’s some risk to the upside on that,” Bullard said.
“We will be able to get to a good consensus on the committee and get to a good wind-down process. It does seem that we are coalescing around a plan,” Bullard said
According to the second estimate, US GDP grew an annual rate of 6.6% in Q2, revised up from 6.5%. The update reflects upward revisions to nonresidential fixed investment and exports that were partly offset by downward revisions to private inventory investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, were revised down.
US initial jobless claims rose 4k to 353k in the week ending August 21, slightly below expectation of 355k. Four-week moving average of initial claims dropped -11.5k to 366.5k, lowest since March 14.
Continuing claims dropped -3k to 2862k in the week ending August 14, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -108.5k to 2901.5k, lowest since March 21, 2020.
Kansas City Fed President Esther George told Bloomberg that the spike in Covid is a “risk to the outlook”, but her contacts in the region said the economy “continues to grow at a strong rate”, consumers are “still spending” and labor markets is “continuing to heal”. The outlook “remains a positive one”. The virus is not expected to derail the economy”.
George also maintained that the progress the economy has made suggests “we’ve come to a point where we can begin to ease up on the amount of accommodation”. It’s “time to begin to make those adjustments” on asset purchases.
As policymakers are coming into the September meeting, she said, we will continue to talk about how the economy has unfolded and the timing for adjustments to those asset purchases”.
In the accounts of July 21-22 meeting, ECB said a “large majority” of the council members supported the forward guidance proposal, which was “widely seen as providing a fine balance between greater emphasis on outcome-based elements in the forward guidance and a more flexible, forward-looking perspective.”
However, “a few members upheld their reservations, as the amended formulation did not sufficiently address their concerns.”. This related in particular to the “implied likelihood and persistence of overshooting, and being seen as promising to keep interest rates at their present or lower levels for a very long time period without an explicit escape clause.”
ECB also said, the new forward guidance “underscored the Governing Council’s commitment to achieving its new inflation target”. It indicated that ECB would “wait until it was confident about the path of inflation before raising the key policy rates.” Nevertheless, the guidance is “not a rule” but “an indication to financial markets and the broader public” for aligning their inflation expectations.
Germany Gfk consumer sentiment for September dropped from -0.4 to -1.2. In August, economic expectations dropped from 54.6 to 40.8. Income expectations rose from 29.0 to 30.5. Propensity to buy dropped from 14.8 to 10.3.
Rolf Bürkl, a GfK consumer expert, commented on this observation: “Significant higher incidence values, a slowdown in vaccination momentum, and discussions about how to deal with unvaccinated individuals in the future have caused noticeable uncertainty among consumers in Germany. They fear that restrictions could even be tightened again. This is obviously depressing consumer sentiment right now.”
Bank of Korea raised interest rate by 0.25% to 0.75% today, becoming the first major Asian economy to hike. “The Board will gradually adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound growth and inflation to run above 2% for some time, despite ongoing uncertainties over the virus,” the BOK said in its monetary policy statement.
Governor Lee Ju-yeol said, “we’ve decided to put the focus on reducing financial imbalances, and as we raise the rate, we are embarking on a process of normalizing policy in line with economic recovery.”
BoK maintained its forecast of 4% GDP growth this year. Consumer inflation forecast was, however, upgraded from 1.8% to 2.1%.
Japan corporate services price index rose 1.1% yoy in July, below expectation of 1.3% yoy. The increase was driven by 1.4% rise in transportation fees, and in particular, with international freight costs up 24.6%. Meanwhile, hotel service fees rose 10.8%, highest in six years, reflecting the impact of the Tokyo Olympics.
“The recent increase in infections will weigh on services producer prices, though we could see service demand perk up if progress in vaccinations help re-open the economy,” said Shigeru Shimizu, head of the BoJ’s price statistics division.
US 10-year yield staged a strong rally overnight, closing up 0.052 at 1.342. The development came as markets are awaiting the highly anticipated Jackson Hole Symposium, which kicks off today. While the main highlight is Fed Chair Jerome Powell’s speech on Friday, there would likely be continuous news flow of central banker comments ahead of that.
After Fed hawk Robert Kaplan’s comments the possibly of adjusting the timing of tapering, it seems less likely for Fed to make a September announcement. We’ll look forward to other Fed officials for guidance, as Powell would act like what he used you be, composed, balanced, but non-inspirational.
Some suggested reading on Jackson Hole:
As for 10-year yield, it’s back pressing 55 day EMA (now at 1.344) with yesterday’s rise. Sustained trading above there, followed by firm break of 1.420 resistance, should confirm that the correction from 1.765 has completed 1.128. That came after hitting 50% retracement at 1.1345. We should then see further rise back to retest 1.1765 high during the rest of the year, as the world is well-vaccinated to live with the coronavirus.
ECB Chief Economist Philip lane said in an interview, Q2 GDP came in “well ahead of out June projections”, reflecting an “earlier opening up”, “strength of the world economy” and “progress in vaccinations”. It’s “still early days” regarding H2, and there could be “counterbalance” like bottlenecks, moderation in world economy, and the Delta variant. Overall, he said, “we’re broadly not too far away from what we expected in June for the full year.”
The Delta variant is now “part of the mix in the US and global economies”, while Europe “may not be among the regions hardest-hit thanks to high vaccination rates and prior lockdown measures. Also, the infrastructure and system for vaccination has “eliminated uncertainty about Europe’s ability to carry out vaccinations.”
On PEPP, Lane said “we’ll have to assess at the September meeting the appropriate calibration for the final quarter of the year”. He emphasized that “single philosophy” of maintaining favorable financing conditions regarding PEPP. “If favourable financing conditions require more purchases, we’ll conduct more purchases,” he said.
US durable goods orders dropped -0.1% mom to USD 257.2B in July, better than expectation of -0.2% mom. Ex-transport orders rose 0.7% mom, above expectation of 0.5% mom. Ex-defense orders dropped -1.2% mom. Transportation equipment, dropped -2.2% to USD 75.3B.
Germany Ifo Business Climate dropped from 100.8 to 99.4 in August, below expectation of 100.4. Current Assessment index rose from 100.4 to 101.4, above expectation of 100.8. However, Expectations index dropped from 101.2 to 97.5, below expectation of 100.0.
Looking at some more details, manufacturing dropped from 27.4 to 24.1. Services dropped from 19.8 to 17.7. Trade dropped from 15.8 to 9.0. Construction rose from 6.0 to 7.8.
Ifo said: “This decline was due mainly to significantly less optimism in companies’ expectations. Concerns are growing in the hospitality and tourism sectors in particular. By contrast, companies assessed their current situation as somewhat better than in the previous month. Supply bottlenecks for intermediate products in manufacturing and worries about rising infection numbers are putting a strain on the economy.”
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
Fed Chair Powell speech live stream
By loading the video, you agree to YouTube’s privacy policy.
Learn more
Load video
Full speech here.