Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
Fed sticks to its guns
This week’s Federal Open Market Committee meeting had a dovish flavour, with Chair Powell stating it was too early to discuss the tapering of QE Treasury purchases, and the majority of members predicting no rate hike in the 2021-23 forecast period. This is despite expectations that the US economy will return to full employment and core personal consumption expenditures inflation will (moderately) exceed 2% over the same period. Forecast GDP for 2021 was revised up materially, to 6.5% from a projection last December of 4.2%.
Bank of England and Bank of Japan meetings pass uneventfully, bond yields continue to head higher
The Bank of England (BOE) Monetary Policy Committee did not signal any policy shift and continued to characterise the recent rise in bond yields as consistent with the improved economic outlook (vaccine rollout, passage of US fiscal stimulus package, for example). The BOE thus remains a relatively hawkish outlier among major central banks. The Bank of Japan announced it will cease purchases of equity ETFs and also slightly increased the ceiling on 10-year Japanese government bonds yields under its Yield Curve Control programme, from 0.20% to 0.25%.
US consumer outlook very healthy
US retail sales fell 3.0% month-on-month in February (versus an expected -0.5%), but the January figure was revised up to 7.6% month-on-month from 5.3%. Overall the trend in US consumer spending is very robust, buoyed by fiscal stimulus. February industrial production was much weaker than expected, as it declined 2.2% in February, with manufacturing production down 3.1%, due to an outsized negative impact from adverse weather conditions.
Government bond yields continue to head higher, particularly in the wake of the Fed meeting, with US 10-year Treasury yields briefly touching a 14-month high of 1.75% and gilts topping 0.90%. This caused equities to come under pressure, led by tech, and erased gains made earlier in the week to leave overall levels little changed compared to the end of the previous week.
The US dollar’s performance was mixed, making modest gains within the G10 currencies but ceding ground to high-yielding emerging market currencies. Crude oil registered its biggest one-week decline since last April, with the Brent marker dropping by around $6 to $63/bbl.
Look out for next week’s update, where we’ll be focusing on March PMIs around the globe and UK retail sales data.
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