Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
“The lady isn’t tapering” – Governor Lagarde channels Margaret Thatcher as she downplays importance of slowing on bond purchases
The ECB deferred the key decisions on the future of the emergency pandemic relief programmes to its December meeting, whilst also announcing that there would be some slowing in the pace of bond-buying (the ECB does not have explicit monthly targets but in practice buying will likely slow from the recent €80bn per month pace to somewhere in the range of €60-70bn). Lagarde was at pains to stress that, unlike the Fed tapering will be when it comes, this reduction in the pace of buying is not on a pre-set and irreversible course –they could increase purchases again if signs of market stress emerge.
Eurozone industrial data robust in July; order books full – some degree of further supply disruption likely
German industrial production rose by 1.0% in July, slightly above expectations. Factory orders leapt 3.4% month-on-month (vs expectations for a modest decline), driven mainly by higher foreign demand in the shipbuilding sector. The gap between orders and production reached a new all-time high, indicating that supply bottlenecks have yet to clear.
Slowing in Chinese credit growth continues but may be close to a trough
New total social financing (TSF) was slightly higher than expected at RMB2.96trn (vs RMB1.06trn in July and consensus RMB2.8trn). M2 (a measure of money supply) growth ticked down from 8.3% to 8.2% (vs 8.4% expected), with government and corporate bond issuance and bill financing improving, but this being offset by slowing shadow banking (such as “wealth management products” ) and property credit.
Equities fell around the globe, with cyclical value underperforming, as investors fretted over growth concerns due to the Delta variant showing little sign of retreating. Yet nominal G10 government bond yields were slightly higher, driven by wider inflation breakevens (the real yields offered by inflation-linked bonds actually fell). Currency markets reflected the “risk-off” tone with outperformance of havens (USD, CHF, JPY) vs higher beta currencies, particularly in emerging markets. Precious metals fell over the week, whilst crude oil prices were little changed.
Look out for next week’s update, where we’ll be focusing on the US and UK CPI inflation and retail sales figures, the UK labour market report and China industrial and retail sales data.
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