Connecting Global Markets and Policy
Persian Daric – First Global Reserve Currency. Guaranteed 95.83% purity gold. Introduced by Darius I the Great, 521 – 486 BC. In circulation until 330 BC defeat of the Persian Achaemenid Empire by Alexander the Great of Macedonia.
SGH Macro Advisors provides macro-policy research to the world’s most influential hedge funds, money managers, and financial policymakers. We produce well-informed, cutting edge reports and briefings on the major central bank, fiscal and political events driving the global economies and financial markets.
Over the years we have built a reputation as a trusted, highly valued source of un-biased, un-conflicted information and insight to the policymaking and investment communities, one that is materially differentiated from street research, the press, and think tanks.
Highlights
SGH reports are highly valued for keeping clients and policymakers informed and well-ahead of consensus and the news cycle on the macro policy events driving global markets.
September 21, 2021
SGH Insight
Importantly, the deal that is being negotiated between the US Department of Justice and Meng’s lawyers is part of a broad political push to lower tensions on the economic front between the United States and China – not that the justice system would be politicized, of course.
Our understanding is that since President Biden came to office, Beijing has brought up the US extradition case against Meng repeatedly in backchannel discussions, and in every discussion with senior US officials since the Sino-US talks in Anchorage, Alaska in March of 2021.
In fact, sources in Beijing indicate that Meng Wanzhou’s case was even brought up directly by China’s President Xi Jinping in his call two weeks ago with US President Joseph Biden.
The current state of play appears to be that the DoJ will drop the extradition case if Meng admits her guilt, which appears to be a stumbling block still, and agrees to pay a hefty fine, which seems, as one might suspect, less of an obstacle.
While direct linkage of the Meng case to US-China (and of course Canada-China) relations may seem rather unseemly, in the words of one admittedly hardline senior Chinese official, “If the Biden administration wants to seek China’s cooperation on climate, counter-terrorism, the economy and trade, the release of Meng is a necessary condition.”
Bellicose threats aside, we suspect this rhetoric is further corroboration that a resolution in the Meng case is close at hand.
Market Validation
Our understanding is that since President Biden came to office, Beijing has brought up the US extradition case against Meng repeatedly in backchannel discussions, and in every discussion with senior US officials since the Sino-US talks in Anchorage, Alaska in March of 2021.
In fact, sources in Beijing indicate that Meng Wanzhou’s case was even brought up directly by China’s President Xi Jinping in his call two weeks ago with US President Joseph Biden.
The current state of play appears to be that the DoJ will drop the extradition case if Meng admits her guilt, which appears to be a stumbling block still, and agrees to pay a hefty fine, which seems, as one might suspect, less of an obstacle.
While direct linkage of the Meng case to US-China (and of course Canada-China) relations may seem rather unseemly, in the words of one admittedly hardline senior Chinese official, “If the Biden administration wants to seek China’s cooperation on climate, counter-terrorism, the economy and trade, the release of Meng is a necessary condition.”
Bellicose threats aside, we suspect this rhetoric is further corroboration that a resolution in the Meng case is close at hand.
Policy Validation
Reuters 9/24/21
Huawei Technologies Chief Financial Officer Meng Wanzhou is expected to appear virtually in federal court to resolve U.S. charges against her, according to a source familiar with the situation.
Resolving the case would remove one of several major disputes between the world's two biggest economies.
Meng was arrested at Vancouver International Airport in December 2018 on a U.S. warrant that charged her with fraud for allegedly misleading HSBC about Huawei's business dealings in Iran.
A spokeswoman for Huawei declined to comment. A spokesman for the U.S. Attorney's office in Brooklyn declined to comment. An attorney for Meng could not be immediately reached for comment.
Reuters 9/24/21
Huawei Technologies Chief Financial Officer Meng Wanzhou is expected to appear virtually in federal court to resolve U.S. charges against her, according to a source familiar with the situation.
Resolving the case would remove one of several major disputes between the world's two biggest economies.
Meng was arrested at Vancouver International Airport in December 2018 on a U.S. warrant that charged her with fraud for allegedly misleading HSBC about Huawei's business dealings in Iran.
A spokeswoman for Huawei declined to comment. A spokesman for the U.S. Attorney's office in Brooklyn declined to comment. An attorney for Meng could not be immediately reached for comment.
September 21, 2021
SGH Insight
We expect Beijing will try to ensure a smooth transition of Evergrande’s portfolio but expect a relatively hard line when it comes to resolution of the firm’s debt load.
Market Validation
Policy Validation
Bloomberg 9/24/21
China’s housing regulator has stepped up oversight of China Evergrande Group’s bank accounts to ensure funds are used to complete housing projects and not diverted to pay creditors.
Bloomberg 9/24/21
China’s housing regulator has stepped up oversight of China Evergrande Group’s bank accounts to ensure funds are used to complete housing projects and not diverted to pay creditors.
September 20, 2021
SGH Insight
This week’s FOMC meeting is turning into something of a nail biter with the dots being the main source of contention. The general expectation is that this next meeting is too early to announce a tapering decision. I concur; the likely outcome of this meeting is guidance that opens the door to tapering at a subsequent meeting.
On inflation, the core-PCE inflation forecast for 2021 will be at least 3.7%, a level well above what anyone on the Fed thinks is moderate, and the 2022 forecast, currently 2.1%, will rise to at least 2.2% (I think 2.3% but arguably that is an aggressive call), and 2023 will likely still be above 2% as well. That means the inflation surge is almost entirely transitory (in line with the Fed’s story) but with enough persistence to drive underlying inflation moderately above the Fed’s 2% target. This strikes me as a forecast in which the Fed is likely to achieve its objective of 2% average inflation with expectations of continued above target inflation (certainly the new policy framework is sufficiently undefined and flexible to admit such an outcome is likely) in the context of something close to full employment in 2022 and thus a forecast of a rate hike in 2022 would be appropriate policy. Remember too that the Fed will not view this as slamming on the brakes. In the context of the forecasted period of elevated inflation, a single rate hike is a very dovish policy.
Admittedly, there is also a numbers game at play here. Only two dots need to shift off zero to get a partial rate hike in the median, three for a full rate hike. The above logic doesn’t need to be adopted by all eleven participants who in June expected no rate hike in 2022, just three of them.
Also contentious is the question of the 2024 dots. I think the consensus is that the 2023 dots will reveal another two hikes. For 2024, there is an argument that the Fed will signal another four hikes. The logic here – again, entirely reasonable – is that the Fed will be intentionally behind the inflation curve and consequently will need to move policy rates quickly up to neutral to stave off inflationary pressures. Surely this is the thinking of a least a minority of FOMC participants and will be evident in the upper range of the dots. I expect a more dovish reaction function in which the median policy maker anticipates only another two rate hikes in 2024. I think in the context of the new policy framework, the median policy maker will anticipate a more gradual return to the neutral rate, driven both by a desire to not slam the brakes on the economy and the short distance to neutral. Also, pulling the lift off into 2022 could be seen as a risk management exercise that allows for a more dovish path of subsequent rate hikes. That said, I admit to not being entirely confident on the 2024 dots. I think four hikes is too aggressive but the risk to my outlook is that the median policy maker anticipates three hikes in 2024.
Market Validation
On inflation, the core-PCE inflation forecast for 2021 will be at least 3.7%, a level well above what anyone on the Fed thinks is moderate, and the 2022 forecast, currently 2.1%, will rise to at least 2.2% (I think 2.3% but arguably that is an aggressive call), and 2023 will likely still be above 2% as well. That means the inflation surge is almost entirely transitory (in line with the Fed’s story) but with enough persistence to drive underlying inflation moderately above the Fed’s 2% target. This strikes me as a forecast in which the Fed is likely to achieve its objective of 2% average inflation with expectations of continued above target inflation (certainly the new policy framework is sufficiently undefined and flexible to admit such an outcome is likely) in the context of something close to full employment in 2022 and thus a forecast of a rate hike in 2022 would be appropriate policy. Remember too that the Fed will not view this as slamming on the brakes. In the context of the forecasted period of elevated inflation, a single rate hike is a very dovish policy.
Admittedly, there is also a numbers game at play here. Only two dots need to shift off zero to get a partial rate hike in the median, three for a full rate hike. The above logic doesn’t need to be adopted by all eleven participants who in June expected no rate hike in 2022, just three of them.
Also contentious is the question of the 2024 dots. I think the consensus is that the 2023 dots will reveal another two hikes. For 2024, there is an argument that the Fed will signal another four hikes. The logic here – again, entirely reasonable – is that the Fed will be intentionally behind the inflation curve and consequently will need to move policy rates quickly up to neutral to stave off inflationary pressures. Surely this is the thinking of a least a minority of FOMC participants and will be evident in the upper range of the dots. I expect a more dovish reaction function in which the median policy maker anticipates only another two rate hikes in 2024. I think in the context of the new policy framework, the median policy maker will anticipate a more gradual return to the neutral rate, driven both by a desire to not slam the brakes on the economy and the short distance to neutral. Also, pulling the lift off into 2022 could be seen as a risk management exercise that allows for a more dovish path of subsequent rate hikes. That said, I admit to not being entirely confident on the 2024 dots. I think four hikes is too aggressive but the risk to my outlook is that the median policy maker anticipates three hikes in 2024.
Policy Validation
Bloomberg 9/22/21
Federal Reserve officials signaled they would probably begin tapering their bond-buying program soon and revealed a growing inclination to start raising interest rates in 2022.
If progress toward the Fed’s employment and inflation goals “continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted,” the U.S. central bank’s policy-setting Federal Open Market Committee said Wednesday in a statement following a two-day meeting.
The Fed also published updated quarterly projections which showed officials are now evenly split on whether or not it will be appropriate to begin raising the federal funds rate as soon as next year, according to the median estimate of FOMC participants. In June, the median projection indicated no rate increases until 2023.
Projections for 2024 were also published for the first time, with the median suggesting a federal funds rate of 1.8% by the end of that year. The median for 2023 rose to 1%, from 0.6% in the June projection.
Other Forecast Takeaways (median estimate):
2021 median PCE inflation 4.2% vs 3.4%
FOMC median projection for 2022 inflation rose to 2.2% from 2.1% in June; held the 2023 forecast at 2.2%
Bloomberg 9/22/21
Federal Reserve officials signaled they would probably begin tapering their bond-buying program soon and revealed a growing inclination to start raising interest rates in 2022.
If progress toward the Fed’s employment and inflation goals “continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted,” the U.S. central bank’s policy-setting Federal Open Market Committee said Wednesday in a statement following a two-day meeting.
The Fed also published updated quarterly projections which showed officials are now evenly split on whether or not it will be appropriate to begin raising the federal funds rate as soon as next year, according to the median estimate of FOMC participants. In June, the median projection indicated no rate increases until 2023.
Projections for 2024 were also published for the first time, with the median suggesting a federal funds rate of 1.8% by the end of that year. The median for 2023 rose to 1%, from 0.6% in the June projection.
Other Forecast Takeaways (median estimate):
2021 median PCE inflation 4.2% vs 3.4%
FOMC median projection for 2022 inflation rose to 2.2% from 2.1% in June; held the 2023 forecast at 2.2%
June 28, 2021
SGH Insight
** But the ECB’s 2023 forecast next spring is still expected to show a small undershoot of its 2% target (a “symmetrical target,” they will note after the final phrasing is formalized for the Strategy Review in September. The ECB will not adopt a more rigid average inflation regime). The ECB will thus seek to avoid a cliff effect from that 40 billion euros PEPP purchase pace in April of 2022 when it comes to an end. To keep inflation expectations from falling back down, the ECB would then top up its Asset Purchase Program by perhaps 20 or 30 billion euros, depending on conditions at that time, to ensure a smoother step down from a combined total of 60 billion to around 40-50 billion euros of APP-only bond purchases a month.
This is just a suggested scenario, but we do take note when people close to the decision-making process lay out hypotheticals, especially when they seem so eminently reasonable.
Market Validation
This is just a suggested scenario, but we do take note when people close to the decision-making process lay out hypotheticals, especially when they seem so eminently reasonable.
Policy Validation
Bloomberg 9/22/21
The European Central Bank will discuss
boosting its regular asset purchases once the pandemic-era
emergency stimulus comes to an end, but any such increase is
uncertain, Governing Council member Madis Muller said.
While the euro area’s recovery should allow the ECB to end
its 1.85 trillion-euro ($2.2 trillion) pandemic bond-buying
program in March, officials will discuss how to avoid derailing
the rebound when support is pulled back. One option would be to
expand the pre-crisis plan above the current 20 billion euros
per month, Muller said in an interview in Tallinn.
“I realize that it would be a problem if there is a very
sharp cliff effect at the end of the pandemic emergency purchase
program,” the Estonian central bank chief said.
A potential increase in the older quantitative easing
program is “part of the discussion we will have on how to phase
out PEPP and what it would mean for asset purchases going
forward,” he said. “And of course the decision will depend on
market conditions next spring and the economic outlook at that
point.”
Bloomberg 9/22/21
The European Central Bank will discuss
boosting its regular asset purchases once the pandemic-era
emergency stimulus comes to an end, but any such increase is
uncertain, Governing Council member Madis Muller said.
While the euro area’s recovery should allow the ECB to end
its 1.85 trillion-euro ($2.2 trillion) pandemic bond-buying
program in March, officials will discuss how to avoid derailing
the rebound when support is pulled back. One option would be to
expand the pre-crisis plan above the current 20 billion euros
per month, Muller said in an interview in Tallinn.
“I realize that it would be a problem if there is a very
sharp cliff effect at the end of the pandemic emergency purchase
program,” the Estonian central bank chief said.
A potential increase in the older quantitative easing
program is “part of the discussion we will have on how to phase
out PEPP and what it would mean for asset purchases going
forward,” he said. “And of course the decision will depend on
market conditions next spring and the economic outlook at that
point.”
September 17, 2021
SGH Insight
In the interest of efficiency and time I thought we might share a few brief highlights of key market related points in (and not in) our reports while addressing some market rumors and chatter. Please let us know if you find them helpful, and we wish you in the meantime a good weekend.
*Debt ceiling suspension will probably be included in a Continuing Resolution going out to December. Beyond that there is no plan yet.
Market Validation
*Debt ceiling suspension will probably be included in a Continuing Resolution going out to December. Beyond that there is no plan yet.
Policy Validation
Bloomberg 9/20/21
House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer say a stopgap government funding bill will include a suspension of the debt limit through December 2022.
“We believe a suspension of the debt limit through December 2022 would provide an amount of time commensurate with the debt incurred as a result of passing last winter’s bipartisan $908 billion emergency COVID relief legislation,” Pelosi and Schumer say
Pelosi and Schumer say the stopgap bill would fund the government through December of this year.
Bloomberg 9/20/21
House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer say a stopgap government funding bill will include a suspension of the debt limit through December 2022.
“We believe a suspension of the debt limit through December 2022 would provide an amount of time commensurate with the debt incurred as a result of passing last winter’s bipartisan $908 billion emergency COVID relief legislation,” Pelosi and Schumer say
Pelosi and Schumer say the stopgap bill would fund the government through December of this year.
September 14, 2021
SGH Insight
To that, reports that US officials are pressing China to remove subsidies on certain industries as a prerequisite to the removal of sanctions can be discounted out of hand as a non-starter. Barring an intense escalation of pressure, that simply is not going to happen, certainly not in exchange for the removal of tariffs – even the Trump administration’s pressure could not get Beijing to move on subsidies.
Market Validation
Policy Validation
Bloomberg 9/15/21
We will implement the important agreements reached by the leaders of the two countries, Chinese Ministry of Commerce Spokeswoman Shu Jueting says in Beijing at regular press conference.
The economic and trade teams from the two sides have been in normal contact, Shu says, when asked if Presidents Xi and Biden will meet in person
When asked about reports that the U.S. is looking into Chinese subsidies, Shu says that unilateral trade protectionism isn’t in the interests of China, the U.S., or the world.
Bloomberg 9/15/21
We will implement the important agreements reached by the leaders of the two countries, Chinese Ministry of Commerce Spokeswoman Shu Jueting says in Beijing at regular press conference.
The economic and trade teams from the two sides have been in normal contact, Shu says, when asked if Presidents Xi and Biden will meet in person
When asked about reports that the U.S. is looking into Chinese subsidies, Shu says that unilateral trade protectionism isn’t in the interests of China, the U.S., or the world.
September 8, 2021
SGH Insight
We have also heard rumors that former Defense Minister Shigeru Ishiba, who polls just behind front runner Taro Kono, another former Foreign Minister, Defense Minister, and current vaccine czar, may choose not to run.
Ishiba is relatively popular among the rank-and-file LDP members who are not members of parliament, but his group has only 17 lawmakers, which is less than the 20 supporters needed to run the race. Ishiba may announce that he will give up and throw his support to Kono.
That further boosts the likelihood that Kono, who is popular among the general electorate because of his image as a reformer, will win.
Market Validation
Ishiba is relatively popular among the rank-and-file LDP members who are not members of parliament, but his group has only 17 lawmakers, which is less than the 20 supporters needed to run the race. Ishiba may announce that he will give up and throw his support to Kono.
That further boosts the likelihood that Kono, who is popular among the general electorate because of his image as a reformer, will win.
Policy Validation
Bloomberg 9/14/21
Kono Gains Momentum in Japan PM Race; Report Says Rival Out
Japan’s vaccine czar Taro Kono looked to be gaining momentum in the race to be the next prime minister after reports said several ministers were planning to back him and one of his expected rivals would stay out of the contest.
Former Defense Minister Shigeru Ishiba, who had been considering a run to take the top job in the Liberal Democratic Party and replace outgoing Prime Minister Yoshihide Suga, has dropped the idea and is thinking of supporting Kono, the Yomiuri newspaper reported Tuesday, citing sources close to Ishiba.
Bloomberg 9/14/21
Kono Gains Momentum in Japan PM Race; Report Says Rival Out
Japan’s vaccine czar Taro Kono looked to be gaining momentum in the race to be the next prime minister after reports said several ministers were planning to back him and one of his expected rivals would stay out of the contest.
Former Defense Minister Shigeru Ishiba, who had been considering a run to take the top job in the Liberal Democratic Party and replace outgoing Prime Minister Yoshihide Suga, has dropped the idea and is thinking of supporting Kono, the Yomiuri newspaper reported Tuesday, citing sources close to Ishiba.
September 3, 2021
SGH Insight
Our understanding is that John Kerry, after he arrived in Tianjin on August 31, then set up a virtual meeting with Wang. But the topic of Kerry’s conversation with Wang was not climate, but bilateral relations.
According to Chinese sources, Kerry also asked Wang to convey to Xi that Biden hopes and looks forward to holding bilateral talks with Xi in Rome.
But before the two leaders can meet, the two sides need to show some consensus on major issues.
Market Validation
According to Chinese sources, Kerry also asked Wang to convey to Xi that Biden hopes and looks forward to holding bilateral talks with Xi in Rome.
But before the two leaders can meet, the two sides need to show some consensus on major issues.
Policy Validation
Bloomberg 9/10/21
The U.S. official criticized China’s linking of
transnational and bilateral matters, essentially holding hostage
any progress on areas like climate change while demanding
unrelated concessions in return.
That was clear when Biden’s climate envoy John Kerry held
talks with Chinese Foreign Minister Wang Yi last week. “China-
U.S. climate change cooperation cannot be separated from the
general environment of relations,” Wang said, according to the
ministry. “The United States should meet China halfway and take
positive actions to push relations back on track.”
Bloomberg 9/10/21
The U.S. official criticized China’s linking of
transnational and bilateral matters, essentially holding hostage
any progress on areas like climate change while demanding
unrelated concessions in return.
That was clear when Biden’s climate envoy John Kerry held
talks with Chinese Foreign Minister Wang Yi last week. “China-
U.S. climate change cooperation cannot be separated from the
general environment of relations,” Wang said, according to the
ministry. “The United States should meet China halfway and take
positive actions to push relations back on track.”
August 31, 2021
SGH Insight
Separately, President Xi Jinping discussed the US-China tech rivalry, negative list, and opening of China’s markets at a meeting in Zhongnanhai on Friday. Excerpts are included below:
“The most powerful weapon against the US all-round containment of China is to focus our efforts on our own affairs and to strive to develop our economy, high technology, and the military…. Opening up is one of the best weapons against the US to contain China…We must continue to welcome and support the development of foreign enterprises in China including US enterprises as long as do they do not become pawns of Washington against China. Relevant departments should speed up formulating and introducing the 2021 version of the national negative list for foreign investment ASAP.”
Xi added, “The competition between China and the US is fundamentally about talent and high technology…We must always adhere to the development of the industry-oriented real economy, must not learn from the US or must not be capital-oriented. A capital-oriented economy is fragile, built on bubbles and vulnerable to a single blow…
“We must ensure the stability of the financial system and eliminate any potential systemic financial risks firmly, forcefully and in a timely manner. While ensuring an average annual economic growth of five percent in the next 10 years, we must ensure high-quality and steady economic development, and we must never neglect medium – and long-term development goals for the sake of short-term economic growth.
Market Validation
“The most powerful weapon against the US all-round containment of China is to focus our efforts on our own affairs and to strive to develop our economy, high technology, and the military…. Opening up is one of the best weapons against the US to contain China…We must continue to welcome and support the development of foreign enterprises in China including US enterprises as long as do they do not become pawns of Washington against China. Relevant departments should speed up formulating and introducing the 2021 version of the national negative list for foreign investment ASAP.”
Xi added, “The competition between China and the US is fundamentally about talent and high technology…We must always adhere to the development of the industry-oriented real economy, must not learn from the US or must not be capital-oriented. A capital-oriented economy is fragile, built on bubbles and vulnerable to a single blow…
“We must ensure the stability of the financial system and eliminate any potential systemic financial risks firmly, forcefully and in a timely manner. While ensuring an average annual economic growth of five percent in the next 10 years, we must ensure high-quality and steady economic development, and we must never neglect medium – and long-term development goals for the sake of short-term economic growth.
Policy Validation
Bloomberg 9/8/21
The mouthpiece of China’s ruling Communist
Party has run a front-page editorial seeking to ease concern
that President Xi Jinping’s regulatory crackdown will hurt
foreign investors.
“Opening to the outside world is China’s basic national
policy, and it will not waver at any time,” the People’s Daily
said in the editorial, which was published on Wednesday under
the headline “Sticking to Regulatory Supervision While Promoting
Development.”
“Unswervingly, the principles and policies of encouraging,
supporting and guiding the development of the non-public sector
of the economy have not changed!” the newspaper said, adding
that the government of the world’s second largest economy would
protect the rights of foreign investors.
The goal of the regulatory moves has been “to promote the
formation of a market environment of fair competition and better
protect consumer rights,” the editorial added, and to open an
avenue for “promoting high-quality development.”
Bloomberg 9/8/21
The mouthpiece of China’s ruling Communist
Party has run a front-page editorial seeking to ease concern
that President Xi Jinping’s regulatory crackdown will hurt
foreign investors.
“Opening to the outside world is China’s basic national
policy, and it will not waver at any time,” the People’s Daily
said in the editorial, which was published on Wednesday under
the headline “Sticking to Regulatory Supervision While Promoting
Development.”
“Unswervingly, the principles and policies of encouraging,
supporting and guiding the development of the non-public sector
of the economy have not changed!” the newspaper said, adding
that the government of the world’s second largest economy would
protect the rights of foreign investors.
The goal of the regulatory moves has been “to promote the
formation of a market environment of fair competition and better
protect consumer rights,” the editorial added, and to open an
avenue for “promoting high-quality development.”
August 26, 2021
SGH Insight
Furthermore, our understanding is that if the Eurozone data stays roughly on expectations over the next two weeks, the ECB will most likely decide to tweak its PEPP purchases modestly downwards for the fourth quarter when the Governing Council meets next on Thursday, September 9.
Market Validation
Policy Validation
The ECB Policy Statement 9/9/21
Pandemic emergency purchase programme (PEPP)
The Governing Council will continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.
Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.
The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
The ECB Policy Statement 9/9/21
Pandemic emergency purchase programme (PEPP)
The Governing Council will continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.
Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.
The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
August 23, 2021
SGH Insight
Federal Reserve Chair Jerome Powell’s remarks will be viewed as the consensus view of the Board. Powell is slated to discuss the economic outlook and it is hard to imagine he could do so without shedding some light on the tapering discussion. Powell can firm up the view that tapering will occur in 2021 simply by reiterating the main themes of the most recent minutes and position the Board as more hawkish than the position elaborated by the most dovish members of the Board. This is my expectation.
Bottom Line: There will be a lot of tapering talk on the “virtual” sidelines at Jackson Hole. The weight of that talk will be on the hawkish side and lean toward tapering this year. Watch for that side, however, to follow Kaplan’s lead and offer additional caveats about the current Covid surge. What we are really looking for, however, is how closely Powell follows the positioning of the minutes and Clarida for evidence that the consensus on the Board is falling in line with a taper this year if Covid allows.
Market Validation
Bottom Line: There will be a lot of tapering talk on the “virtual” sidelines at Jackson Hole. The weight of that talk will be on the hawkish side and lean toward tapering this year. Watch for that side, however, to follow Kaplan’s lead and offer additional caveats about the current Covid surge. What we are really looking for, however, is how closely Powell follows the positioning of the minutes and Clarida for evidence that the consensus on the Board is falling in line with a taper this year if Covid allows.
Policy Validation
8/27/21
Treasuries Rise as Powell Signals Taper on Course for This Year
Treasuries gained even in the wake of comments from Federal Reserve Chair Jerome Powell signaling that the central bank could begin paring its monthly bond purchases this year.
The remarks Friday at the Kansas Fed’s virtual Jackson Hole symposium kept intact the message traders already garnered from past comments by Powell and from the minutes of the central bank’s last policy meeting, in July -- that most officials judged that it probably would be appropriate to begin paring the buying in 2021.
Ten-year yields fell 2 basis points to about 1.33% and the yield curve reversed an early-session move that sent it to the flattest level in a year. The Fed is currently buying $120 billion a month in bonds, part of emergency measures introduced last year to support the economy and help markets function smoothly.
Powell said in his remarks that the economy has now met the test of “substantial further progress” toward the Fed’s inflation objective that he and his colleagues said would be a precondition for tapering the bond purchases, while the labor market has also made “clear progress.”
The yield curve, as measured by the gap between 5- to 30-year yields, was about 2 basis points steeper than Thursday’s closing levels, at about 111 basis points. The curve earlier in the session Friday touched around 107 basis points amid comments from other Fed officials that were deemed on the hawkish side in terms of pushing for a quicker start to tapering.
8/27/21
Treasuries Rise as Powell Signals Taper on Course for This Year
Treasuries gained even in the wake of comments from Federal Reserve Chair Jerome Powell signaling that the central bank could begin paring its monthly bond purchases this year.
The remarks Friday at the Kansas Fed’s virtual Jackson Hole symposium kept intact the message traders already garnered from past comments by Powell and from the minutes of the central bank’s last policy meeting, in July -- that most officials judged that it probably would be appropriate to begin paring the buying in 2021.
Ten-year yields fell 2 basis points to about 1.33% and the yield curve reversed an early-session move that sent it to the flattest level in a year. The Fed is currently buying $120 billion a month in bonds, part of emergency measures introduced last year to support the economy and help markets function smoothly.
Powell said in his remarks that the economy has now met the test of “substantial further progress” toward the Fed’s inflation objective that he and his colleagues said would be a precondition for tapering the bond purchases, while the labor market has also made “clear progress.”
The yield curve, as measured by the gap between 5- to 30-year yields, was about 2 basis points steeper than Thursday’s closing levels, at about 111 basis points. The curve earlier in the session Friday touched around 107 basis points amid comments from other Fed officials that were deemed on the hawkish side in terms of pushing for a quicker start to tapering.
August 10, 2021
SGH Insight
Second, the latest Covid wave is likely to hit Asia hard (low rates of vaccination will likely combine with the more transmittable Delta variant) and create a fresh series of supply shocks. See this, for example:
Nissan says its huge factory in Smyrna, Tennessee, will close for two weeks starting Monday due to computer chip shortages brought on by a coronavirus outbreak in Malaysia.
We are probably going to see more of these stories in the weeks ahead.
Market Validation
Nissan says its huge factory in Smyrna, Tennessee, will close for two weeks starting Monday due to computer chip shortages brought on by a coronavirus outbreak in Malaysia.
We are probably going to see more of these stories in the weeks ahead.
Policy Validation
8/12/21
China partly shut the world’s third-busiest
container port after a worker became infected with Covid,
threatening more damage to already fragile supply chains and
global trade as a key shopping season nears.
All inbound and outbound container services at Meishan
terminal in Ningbo-Zhoushan port were halted Wednesday until
further notice due to a “system disruption,” according to a
statement from the port. An employee tested positive for
coronavirus, the eastern Chinese city’s government said.
The closed terminal accounts for about 25% of container
cargo through the port, calculates security consultant
GardaWorld, which said “the suspension could severely impact
cargo handling and shipping.”
8/12/21
China partly shut the world’s third-busiest
container port after a worker became infected with Covid,
threatening more damage to already fragile supply chains and
global trade as a key shopping season nears.
All inbound and outbound container services at Meishan
terminal in Ningbo-Zhoushan port were halted Wednesday until
further notice due to a “system disruption,” according to a
statement from the port. An employee tested positive for
coronavirus, the eastern Chinese city’s government said.
The closed terminal accounts for about 25% of container
cargo through the port, calculates security consultant
GardaWorld, which said “the suspension could severely impact
cargo handling and shipping.”
News and Events
SGH Macro Advisors hosts private roundtable meetings and events for clients and senior policymakers and will on occasion share its insights and grant interviews to selective media upon request.