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Will the European Central Bank slow down its bond purchases?

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Market issues update

Will the European Central Bank slow down its bond purchases?

As the Eurozone economy rebounds from the Covid pandemic, soaring inflation increases the possibility that the European Central Bank may begin to scale back its emergency stimulus measures as early as this week.

Investors have already started After a series of public comments by policymakers suggesting that this move may occur at Thursday’s meeting, the possibility of a “cutback” in the European Central Bank’s asset purchases was priced, which is after the fastest rise in consumer prices in the Eurozone. Over the years.

Barclays’ chief European economist Silvia Ardagna said that she expects the European Central Bank to reduce the monthly bond purchases from the current 80 billion euros under the Pandemic Emergency Purchase Program (PEPP) to Between 60 billion and 70 billion euros. Ardagna also expects the central bank to increase its growth and inflation expectations.

Ardagna believes that even so, the European Central Bank will still be keen to take such steps to avoid sending “hawkish” signals. Unlike the Federal Reserve, which is expected to stop asset purchases altogether soon, investors believe that once the PEPP ends, the European Central Bank will continue to purchase bonds under its pre-pandemic quantitative easing program.

“We think the European Central Bank President will indicate that the conditions for changing the broader monetary policy stance have not yet emerged… And the changes to the PEPP plan should not be interpreted as starting to reduce total asset purchases to zero, but should be interpreted as due to growth. And adjustments to emergency measures to greatly improve the inflation outlook,” Ardagna said. Tommy Stabington

How will the insights of the Beige Book affect the Fed’s pace of reduction?

The Fed will release the Beige Book on Wednesday, a qualitative report on the state of the U.S. economy, which will help inform the central bank’s decision to begin cutting its $120 billion monthly government debt purchase program.

The Beige Book compiles interviews conducted by 12 local Federal Reserve Banks in its area. Market participants and the Federal Open Market Committee are particularly interested in gaining insights into labor market trends and supply chain issues that have been pushing up inflation this year.

The Fed has stated that achieving an average inflation rate of 2% and “substantial further progress” in achieving the maximum employment rate are the two thresholds that the U.S. central bank must meet to start reducing its economic support. At the Jackson Hole Summit in August, Powell says The first of these conditions has been met.monotonous Employment report Friday indicated that the second one is further away.

“The question is whether this report gives the Fed enough confidence to announce interest rate cuts this year at the next meeting, and more importantly, maintains their forecast of two interest rate hikes in 2023. We don’t think it will, and we don’t expect the Fed to be moderate. Take a step back. The September meeting,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

Although many investors usually rely more on national quantitative data to inform their prospects and positioning, this month’s Beige Book may be more important than usual.

“Usually I prefer hard data and avoid these anecdotes, but considering today’s situation… These anecdotes may be the best way to judge whether the supply chain tightening is alleviating,” said Tom Graff, head of fixed income at Brown Consulting. Say.

“In the context of unprecedented supply pressures, labor shortages, and rapidly changing epidemics, hard data requires at least context and can sometimes be deceptive,” he said. Kate Duguid

Will the Bank of Australia raise interest rates eventually?

The Reserve Bank of Australia has raised interest rates for 11 years, and few people expect this week’s meeting of central bank governors to break this situation.

The soaring real estate market has prompted some analysts to think about whether the Reserve Bank of Australia can raise interest rates from historically low levels. However, a new round of blockade to prevent the spread of Covid-19 makes this unlikely. Due to the surge in new coronary pneumonia cases, neighbouring New Zealand has postponed a generally expected rate hike in August.

Shane Oliver, chief economist at AMP Capital, said that the deteriorating economic outlook since the last meeting of the Reserve Bank of Australia will strengthen the position that there is still a long way to go to raise interest rates. “Currently, there is not much interest in interest rates because the Reserve Bank of Australia has stated for some time that it will not raise interest rates until’the actual inflation rate can be sustained within the target range of 2% to 3%.’ He said, “The core of the economy The scenario is that this condition will not be met before 2024″.

However, there is controversy as to whether the bank will fulfill its desire to reduce bond purchases by about one-fifth. Su-Lin Ong, managing director of RBC Capital Markets, said that the Reserve Bank of Australia will have a “simple narrative” that will moderately reduce the pace of purchases to approximately A$4 billion per week.

Others predict that the plan will be shelved due to the deteriorating economic outlook. “We are very pessimistic about the Australian economy in the next few months and expect the rebound to be weaker than 2020,” said Kim Mundy, senior economist at the Commonwealth Bank. No fields

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