Will the European Central Bank cause a historic rate hike?
Even before last week’s data showing inflation in the euro-zone hit an all-time high and unemployment plunged to a new low, markets assumed the European Central Bank would pick up the pace of rate hikes when it meets on Thursday. .
In July, the ECB raised interest rates for the first time in more than a decade, raising the benchmark deposit rate from minus 0.5 percent to zero.
But in the past week a series of members of the ECB’s Governing Council have called for “action by force” by “pre-loading” the path of future interest rate hikes to prevent rising inflation from spiraling into sustained higher wages. and prices.
Investors have noted that they have pushed up bond yields to bet on a high probability that the ECB will raise interest rates by 0.75 percent only for the second time in its history. The first was a short-lived technical adjustment just days after the introduction of the euro in 1999.
“The key decision at the upcoming meeting will be between an increase of 50 basis points or 75 basis points,” Jens Eisenschmidt, an economist at Morgan Stanley, wrote in a note to clients. “We think it is a very close call, with good arguments on both sides, but in the end we think those advocating a bigger increase will prevail as September presents the best opportunity to send a clear signal of determination. “
The ECB could also announce measures to reduce a billion-dollar bonanza it expects to give to banks from its ultra-cheap loan arrangement known as the longer-term targeted refinancing operations, or TLTRO, he said. But other steps, such as starting to shrink the balance sheet, will likely wait until the October or December meetings. Martin Arnold
Has US service activity growth slowed in the past month?
Activity in the US services sector is expected to have slowed to its lowest level since May 2020 in August as economic growth slows amid aggressive rate hikes implemented by the Federal Reserve to address continued high inflation.
According to economists polled by Reuters, the ISM non-manufacturing index is forecast to report a value of 54.8, up from 56.7 in July.
While any reading above 50 points to an expansion, growth in the services sector is expected to slow after recovering from a decline in activity caused by lockdowns at the start of the pandemic. Oren Klachkin, chief US economist at Oxford Economics, said the best days of the service sector recovery “are behind us”.
“The post-Covid pop-in activity is behind us,” Klachkin said. “Economic growth would eventually slow down. More normal spending patterns will slow growth.”
In an effort to contain rising inflation, the Federal Reserve implemented two consecutive 0.75 percentage point rate hikes to cool the economy. Inflation in the US eased in July, but consumer spending slowed more than expected, rising 0.1 percent and not expecting a 0.4 percent rise, according to the consumer spending price index.
While some aspects of the service sector, such as supply chain conditions, have improved, labor costs, prices and inventories have yet to recover to pre-pandemic conditions.
“Better inflation and supply chain conditions should result in some release of pent-up demand, all else equal. However, the price and supply dynamics remained far from pre-Covid norms,” Klachkin said. Alexandra White
Did China’s export growth slow in August?
China’s exports have been a rare bright spot for the economy, which has been ravaged by Covid-19 lockdowns. The country’s July surplus confused experts and jumped to an all-time high of more than $101 billion, boosted by a larger-than-expected 18 percent increase in exports.
However, imports fell short of expectations, rising just 2.3 percent from the same period a year earlier, pointing to continued weakness in domestic demand in the country.
The economy took another hit in August when heatwaves and droughts led to power shortages and prompted several provinces and cities to suspend or limit electricity supplies to factories.
There was further evidence that the country’s export growth would slow in August in the latest manufacturing purchasing managers’ index, which recorded a second consecutive month in the contraction zone. The new export orders sub-index came in at 48.1 points, below the 50-point threshold separating contraction and expansion for the 16th consecutive month.
“The robust export growth of the past two years is really behind us and will slow down in the coming quarters as major developed economies slide into recession amid a more synchronized global slowdown,” analysts at Bank of Japan Nomura wrote.
Analysts at Barclays, meanwhile, predict that China will post a smaller trade surplus of $91 billion for the month, with import growth increasing to 4 percent and export growth slowing to 14 percent.
“We expect . . . import growth to remain in low single digits in August given weaker domestic demand . . . led by contracting real estate investment and subdued consumption,” the bank’s analysts wrote in a note. William Langley