© Reuters. File picture: On June 17, 2021, the President of the European Central Bank, Christine Lagarde, adjusted her protective mask when she arrived at the Eurogroup Finance Ministers meeting held in the European Council of Luxembourg, Luxembourg. Francisco Seco/Pool via REU
(Reuters)-1/EYES LIKE A HAWK
The European Central Bank meeting will end on Thursday, and a large number of recent policy hawks’ comments indicate that the meeting will have a heated debate.
Eurozone inflation soared to a 10-year high of 3%. The market may be willing to ignore the noise surrounding price pressure, which is generally considered temporary, but the hard-line comments by officials in Germany, the Netherlands and Austria are disturbing reasons.
Economists believe that it is too early for the European Central Bank to announce emergency stimulus measures, but it may agree to slow down its bond purchases on Thursday. If the market interprets this move as a hawk, the euro and bond yields may rise. Christine Lagarde, President of the European Central Bank, faces communication challenges.
-Eurozone inflation soars to a 10-year high, causing headaches for the European Central Bank
2/ a tricky question
How serious is the latest round of inflation? Friday’s US August producer price index data may provide some clues, as inflationary pressures have weakened the Fed’s view that price increases may only be temporary. July showed the largest annual increase in more than a decade.
When the PPI rose sharply, the rapid economic recovery resulted in a mismatch between supply and demand, causing producers to face low inventories, rising commodity prices, the global container crisis and increasing labor costs.
Some people worry that the signal of continued rising inflation may prompt the Fed to withdraw easy money faster than expected. Federal Reserve Chairman Jerome Powell has repeatedly stated that the current inflation burst is temporary and assured the market that policymakers will take a prudent approach to reduce monthly bond purchases.
-U.S. producer prices are at a high level for more than a decade; initial jobless claims have fallen
-Powell’s wait-and-see speech reassure some investors
3/Put Option of the People’s Bank of China
Although the Fed laid the foundation for downsizing, the loose comments eased the disappointment brought about by China’s poor economic data, and China’s recovery momentum has almost dried up.
Tuesday’s trade data may limit a series of weak releases, the most recent showing stagnant growth in manufacturing last month and contraction in the services sector — all of which are starting to stretch the strength of the yuan.
Economists, a rebound in the stock market and a rebound in the bond market indicate that policies will be relaxed before the end of the year, possibly by lowering bank deposit reserve ratios.
Policymakers in Beijing may need to pay special attention to real estate developers if they want to see growth and loan flows again after the debt that has plagued them and their lenders has been hit.
-GRAPHIC-China may speed up fiscal expenditures, but will not cut interest rates
4/ The only way is to get up! (most)
As inflation rises, the Fed, the European Central Bank, and the Bank of Japan may stand idly by, but developing economies will certainly not show as they will show again in the next few days.
Volatile emerging currencies can greatly amplify price increases, so the central bank needs to be vigilant. In Russia, where inflation is at a five-year high, interest rates on Friday are expected to rise for the fifth time this year.
Peru may raise interest rates by 50-75 basis points on Thursday, along with potential rate hikers Ukraine. Although Malaysia should remain calm that day, even the Eastern European monologue Poland may sound tougher on Wednesday.
-GRAPHIC-For most emerging market central banks, the only way out is to rise
5/ Politics and risk
The commemoration of the 9/11 attacks on the World Trade Center in New York two decades ago took place after the chaotic withdrawal of troops from Afghanistan. This raised concerns about new terrorist threats and brought numerous humanitarian and security challenges.
The latest events are a powerful reminder that political risks show little signs of abating, and that some major changes are underway, from changing the League of Nations to political repositioning.
Not everyone will be as violent as withdrawing from Afghanistan.
But the market is paying close attention to the growing political risks: the troubled Japanese Prime Minister Yoshihide Suga has just decided to resign; the Germans will vote in the election on September 26 because of Chancellor Angela Merkel (Angela Merkel) Resigning after 16 years in power, and Chile’s November vote may see the region’s pendulum move further to the left.
-The German Social Democratic Party expands conservatives ahead of Merkel