Source: Richmond Fed

Federal Reserve Bank of Richmond President Thomas Barkin isn’t ready to call for an end to the U.S. central bank’s $120 billion a month in bond-buying stimulus given where the labor market stands today. When it comes to slowing the pace of asset buying, “if the labor market can clear relatively quickly, then maybe it can happen sooner, but if it takes longer for the labor market to reopen, it goes a little later,” Mr. Barkin said in a Wall Street Journal interview Friday.

The official said he hopes the job market will reach “relatively soon” the threshold the central bank has laid out as a trigger point for pulling back on asset buying. The policy maker said the employment-to-population ratio is important to him in determining when the central bank can dial back on the stimulus it is providing the economy. This ratio stood at 61.1% in February 2020, before the coronavirus pandemic took hold in the U.S. and economic activity cratered. It bottomed out in April of that year at 51.3% and has risen since, hitting 58% this June. Mr. Barkin said he would like to see something just north of 59% before he believes it would be time to start reducing bond buying.

(WSJ – Continue Reading)

Source: ECB

European Central Bank President Christine Lagarde told investors to prepare for new guidance on monetary stimulus in 10 days, and signaled that fresh measures might be brought in next year to support the euro-area economy after the current emergency bond program ends. Speaking to Bloomberg Television days after the ECB raised its inflation goal to 2% and acknowledged it may overshoot the target, Lagarde said the July 22 Governing Council session -- previously expected to be relatively uneventful -- will now have “some interesting variations and changes.” “It’s going to be an important meeting,” she said on Sunday in Venice, after a meeting of Group of 20 finance ministers and central bankers.

 “Given the persistence that we need to demonstrate to deliver on our commitment, forward guidance will certainly be revisited.” The unexpectedly early conclusion of the ECB’s strategy review last week is immediately feeding into speculation over the central bank’s plans as the euro-zone economy starts to recover from the pandemic. The review also introduced climate-change considerations into policy, and officials said they’ll start taking account of the cost of owner-occupied housing. Lagarde said she expects the ECB’s current 1.85 trillion-euro ($2.2 trillion) bond-buying plan to run “at least” until March 2022. That could then be followed by a “transition into a new format,” she said, without elaborating. 

(Bloomberg – Continue Reading)

Banks have done a lot to put themselves in a position to benefit from higher rates. Now investors just have to wait. Second-quarter earnings by the biggest banks in the country will start coming out Tuesday with reports from JPMorgan Chase and Goldman Sachs , followed by more over the course of the week. The flow of news overall was good for banks in the second quarter. The results of the Federal Reserve’s stress test paved the way for big capital returns. Credit metrics continue to look very strong, as the slowing of stimulus hasn’t so far led to a surge in defaults. The Fed’s tweak to its overnight reverse repo rate helped relieve some pressure on banks’ bulging balance sheets.

Investors had been expecting much of this, driving the up by nearly 40% at the start of June. The stocks have cooled a bit of late, but big banks have outperformed financials and the broader market overall. Nonetheless, big banks still trade at about 50% of the forward price-to-earnings multiple of the S&P 500, compared with a historical median of 75%, according to analysts at Autonomous Research. That implies some room to run.

(WSJ – Continue Reading)

City forecasters believe the UK’s recovery will be weaker and slower than expected, with the economy now set to take three months longer to return to pre-Covid levels. Goldman Sachs, JP Morgan, Capital Economics and Berenberg Bank have all cut their 2021 GDP estimates in the wake of disappointing output figures for May released last week, showing growth of 0.8 per cent. The revised forecasts come before this week’s inflation numbers, which are expected to reveal another rise in the cost of living. The benchmark consumer prices index was up by 2.1 per cent in May, and most economists expect June’s numbers to show a modest rise to 2.2 per cent. Andy Haldane, the former Bank of England economist, has raised the spectre of inflation nearing 4 per cent by the end of the year.

The prices of petrol, furniture, second-hand cars and leisure services are all rising and a shortage of many key materials, including concrete, timber and computer chips, is regarded as a brake on the recovery. Although GDP bounced back strongly in the spring, there are growing concerns about labour shortages and the impact when furlough and other state support schemes are withdrawn. There are also fears that when Covid restrictions are lifted on July 19, there will be a surge in the number of workers self-isolating.

(Times – Continue Reading)