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Livesquawk - US Briefing - Thursday 22.07
US Briefing - Thursday 22.07
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With ECB Likely On Rate Hold, Focus Turns To Inflation Target

Source: ECB Media

FRANKFURT – The meeting of Eurozone central bankers on Wednesday and Thursday is likely to be fractious as the hawks and doves square off over forward guidance after this month’s adjustment of the inflation target. Following the lead of the US Federal Reserve, the European Central Bank raised its target for consumer price growth. For the Frankfurt-based bank, the increase was a product a strategic review, its first in 18 years. The ECB decided to lift its inflation goal to 2% from near but below that mark. A number of analysts say the policy change fell short of the shift at it US counterpart, which announced in August of last year a willingness to permit inflation that exceeds 2% without raising interest rates.


The ECB suggested a readiness to adjust rates should inflation over- or undershoot the new goal by too large a margin. “This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable.” ECB President Christine Lagarde is scheduled to face journalists following Thursday’s monetary policy decision – no rate changes are expected – and she will likely field questions on the increase in the inflation target and the other actions taken following the review, which the bank said included plans to add housing costs to its basket of consumer prices.

(LiveSquawk – Continue Reading)

S.Africa Key Rate Seen Steady, GDP Forecast Cut On Riots

South Africa’s central bank will probably keep the benchmark interest rate unchanged and lower its economic-growth forecasts on Thursday as the country reels from a third wave of Covid-19 restrictions and after deadly riots. While output rose more than expected in the three months through March and data, including the composite leading business-cycle indicator, suggest an acceleration in gross domestic product in the second quarter, the unrest that erupted in South Africa last week is a key risk to the outlook for 2021. The looting and arson, and reintroduction of a strict lockdown are likely to push policy makers to lower their 4.2% expansion projection for this year and may push out their prediction that output will return to pre-pandemic levels in 2023.


Economists, including Michael Kafe of Barclays Bank Plc, see the riot damage shaving as much as one percentage point off GDP growth in 2021. That could see the monetary policy committee delay the start of an interest rate hiking cycle. The panel has since late last year signaled that its next move will be up and the last time any of its five members voted for easing was in January. The central bank’s quarterly projection model, which the committee uses as a guide, in May indicated one rate increase of 25 basis points in the second quarter and another in the fourth. The MPC already deviated from the framework by leaving the benchmark unchanged at its last meeting and consumer-price growth that remains close to the 4.5% midpoint of its target band shows it still has room to support the economy.

(Bloomberg – Continue Reading)

BoE’s Broadbent Sees Reasons For Inflation Tide To Ebb

Source: Bank of England

A current spike in consumer goods prices does not point to longer-term persistence in inflation, Bank of England Deputy Governor Ben Broadbent said on Thursday, pointing to labour market signals as a better gauge of price growth ahead. With top officials at the British central bank split on the need to remove their stimulus for the economy quickly, Broadbent highlighted how inflation pressures in the past had subsided and how the British job market usually did not amplify price shocks. "While we know it's going to go further over the next few months, I'm not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18-24 months ahead, the horizon more relevant for monetary policy," he said.


"The outlook for aggregate demand growth still matters. And for all the usual reasons and more, the (Monetary Policy) Committee will have to pay very close attention, parsing the official data as best it can, to the numbers in the labour market," Broadbent added. Two BoE rate-setters, Deputy Governor Dave Ramsden and MPC external member Michael Saunders, surprised investors last week by saying the time for tighter policy might be approaching.  But another MPC member Jonathan Haskel said reducing support for the economy was not the right option for the foreseeable future and Catherine Mann - who joins the BoE as a policymaker on Sept. 1 - warned against curbing stimulus too soon. 

(Reuters – Continue Reading)

Read Full Speech From Broadbent: 'Mismatch' Here

Inflation Drumbeat Reverberates On Latest US Earnings Calls

Temporary may well extend into 2022. The outsize gains in U.S. inflation measures that exceeded forecasts over the last four months have been borne out in recent corporate earnings calls, with many executives highlighting greater pricing power. During the kickoff to the current earnings season, companies including paints and coatings producer PPG Industries Inc., beverage maker Coca-Cola Co. and industrial supplies distributor Fastenal Co. have telegraphed building price pressures.


“This inflation cycle is much higher than anyone anticipated and we’re continuing on a business by business basis, working to secure further selling price increases,” PPG’s Chief Executive Officer Michael McGarry said on the company’s July 20 earnings call. Business surveys continue to show elevated input costs as supply of both materials and labor lags behind solid demand. Spot commodities prices remain elevated and wage pressures are building. On Wednesday, Coke said it’s also feeling the effects of inflated pricing of commodities and materials. “In 2022 there are more pressures coming at us, and we are working closely with our bottling partners to mitigate some of those pressures,” Coke Chief Financial Officer John Murphy said in an interview Wednesday. “It’s difficult to tell how far into 2022 those pressures persist.”

(Bloomberg – Continue Reading)

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