Aurelia Butler

The Bank of England on Thursday became the first major central bank to raise interest rates since the COVID-19 pandemic began. The U.S Federal Reserve also took a big step toward ending bond-buying and preparing for rate hikes, while the European Central Bank remains in the slow lane.Here’s a look at where policymakers stand on the path out of pandemic-era stimulus, in order of how hawkish they appear: (Graphic on, Central bank balance sheets: https://fingfx.thomsonreuters.com/gfx/mkt/klvyknowjvg/theme1612.PNG) 1/ NORWAY Norway’s central bank cemented its position as the most aggressive rate-setter in the developed world, raising rates https://www.reuters.com/markets/europe/norway-hikes-interest-rates-with-more-come-2021-12-16 for the second time this year on Dec. 16 despite an expansion of COVID curbs that could hurt economic prospects.Having kicked off policy tightening in September, the bank upped rates by 25 basis points to 0.5% and flagged more next year, potentially taking the key rate to 1.25% by end-2022. (Graphic on, New Zealand, Norway lead way with rate hikes among developed economies: https://fingfx.thomsonreuters.com/gfx/mkt/mopanqrdzva/CBANKS1712.PNG) 2/ NEW ZEALAND New Zealand’s central bank hiked rates last month for the second time this year to 0.75% and forecast they would reach 2.5% by 2023. Inflation has surged and a red-hot housing market has stoked fears of economic overheating. Data this week showing the economy shrank a record 3.7% https://www.reuters.com/world/asia-pacific/new-zealand-gdp-shrinks-37-q3-due-delta-lockdowns-2021-12-15 in Q3 was not as bad as expected and with COVID-19 restrictions expected to ease, the numbers have not dampened rate hike expectations.3/ BRITAIN The Bank of England shocked markets https://www.msn.com/en-ca/money/topstories/boe-becomes-first-major-central-bank-to-raise-rates-since-pandemic/ar-AARRc2R on Thursday with a 8-1 vote to hike rates, deciding to stamp on inflation now, rather than wait to see how the fast-spreading Omicron variant of COVID-19 impacts the economy.Explaining its 15 bps hike to 0.25%, the BoE said inflation was likely to hit 6% in April – triple its target – and that more rate rises would probably be needed.Money markets, which had priced in an initial hike in February, now expect 25 bps more of tightening by March and a further two rate rises before end-2022. (Graphic on, The BoE’s base rate since 1900: https://fingfx.thomsonreuters.com/gfx/mkt/jnpweaobmpw/BoE1712.PNG ) 4/ UNITED STATES The Federal Reserve this week took a significant hawkish turn https://www.reuters.com/markets/us/fed-prepares-stiffen-inflation-response-post-transitory-world-2021-12-15. On Wednesday, it committed to end its pandemic bond-buying by March and laid out an accelerated timetable for rate hikes.Fed Chair Jerome Powell anticipates strong growth and full employment in 2022 and believes the central bank needs to treat inflation as the more pressing risk.No surprise, then, that markets price in a strong chance of rates rising in May, with a hike by June fully priced in. (Graphic on, Rising US inflation spurs Fed to action: https://fingfx.thomsonreuters.com/gfx/mkt/gdpzymgbovw/USCPI1712.PNG) 5/ CANADA Comments by Bank of Canada governor Tiff Macklem this week suggest rates will start rising soon, given inflation at 18-year highs and fast-diminishing economic slack.Money markets now almost fully price in a 25 bps rate rise in March. Canada’s central bank said in October it would end its bond-buying programme and brought forward its projections for rate rises. 6/ AUSTRALIA Australia’s central bank is in the dovish camp, but only just. Last month the Reserve Bank of Australia took a major step towards unwinding pandemic stimulus when it abandoned an ultra-low bond yield target and opened the door for a first rate hike in 2023, earlier than a previous forecast of 2024.This week Governor Philip Lowe said he was open to ending bond buying as early as February but still thought it unlikely rates would need to rise in 2022 – putting the RBA towards the back of the tightening queue.7/ SWEDEN Sweden has ended pandemic-era lending facilities but says rates will rise only if inflation pressures change significantly. The bank has pencilled in a rate hike in late 2024.But data this week showed headline inflation at a 25-year high https://www.reuters.com/markets/europe/headline-inflation-sweden-hits-fastest-pace-since-1993-2021-12-14, which one rate-setter said supported the case to further taper stimulus. Riksbank governor Stefan Ingves https://www.reuters.com/markets/europe/swedish-cbank-chief-says-inflation-surge-due-energy-prices-2021-12-14 attributed the surge to power prices. 8/ EURO ZONE The European Central Bank is on a very different path to most of its peers.On Thursday it said it would end its 1.85 trillion euro pandemic emergency asset-buying scheme next March.But it also promised copious support via its long-running Asset Purchase Programme and signalled that any exit from years of ultra-easy policy will be slow. The ECB says a rate rise next year is unlikely and expects inflation, running at a record-high 4.9%, to retreat. (Graphic on, Life after PEPP looms in the euro area: https://fingfx.thomsonreuters.com/gfx/mkt/byprjqabjpe/ECB1712.PNG) 9/ JAPANThe Bank of Japan on Friday took tentative steps to unwind pandemic-era stimulus, saying it will slow purchases of corporate bonds and commercial paper to pre-pandemic levels from April.But the bank maintained its short-term rate target at -0.1% and that for 10-year bond yields around 0%. With inflation well below its 2% target, the BOJ will likely maintain ultra-easy policies much longer than peers. 10/ SWITZERLAND The Swiss National Bank stuck to its guns this week, saying its monetary policy stance, combining the world’s lowest interest rates with frequent currency market interventions, remained appropriate.While the Swiss franc’s recent rise to 6-1/2-year highs has taken the edge off imported inflation, the SNB has intervened sporadically to keep the franc’s gains in check. It recently launched its single biggest weekly intervention since mid-May. (Graphic on, CHF intervention: https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkyogbpx/CHF%20intervention.JPG ) More

Investing.com — Technology stocks are set for fresh selling as the world adjusts to the looming end of free money from central banks. China imposes its first Omicron-related restrictions, while data from South Africa give more grounds for optimism about the relative mildness of the new variant of Covid-19. German business gets even gloomier despite shimmers of light on the horizon, while the Bank of Japan joins the global tightening trend even more hesitantly than the European Central Bank. Here’s what you need to know in financial markets on Friday, 17th December.1. Tech under pressure Technology stocks are set to extend their Thursday losses when they open later, as a gradual tightening of monetary policy around the world brings to an end an era of free money for bets on long-duration growth prospects.The Nasdaq Composite fell 2.5% on Thursday, its second daily drop of more than 2% already this month, as investors fled unprofitable growth names and took profits even in more defensive and cash-rich names such as Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA).Apple stock fell 3.9% on Thursday and was down another 1.8% in premarket. Tesla (NASDAQ:TSLA) stock was down 1.6%.The Nasdaq has still more than doubled from its level in March 2020 in the early days of the pandemic. By 6:35 AM ET (1135 GMT), Nasdaq 100 futures were down 0.7%, while Dow Jones futures were down 0.1% and S&P 500 futures were down 0.3%.2. China starts to move on OmicronCountries around the world continued to adopt public health measures to stop the spread of the Omicron variant of Covid-19. The Chinese region of Guangdong, including its capital Guangzhou, introduced its first – albeit localized – restrictions on movement, while Italy angered other EU member states with fresh testing requirements on those arriving from abroad.There was better news from South Africa, the first country to identify the Omicron variant. Latest data indicated hospitalization rates lagging well behind those seen in previous waves.  However, health experts have warned against extrapolating too much from South African data, given the young skew of its population and the much greater spread of vaccination since the last Covid wave.In Europe, meanwhile, there was the first sign that governments will have to reopen the fiscal support taps to cushion the economic slowdown caused by the latest surge. Sweden said it will resume support payments for businesses hit by the sharp drop in demand for some consumer-facing services.3. BoJ signals modest tightening ahead; Russia, Mexico hike & Colombia is next upThe global tightening of monetary policy advanced further overnight, with the Bank of Japan saying it will stop its purchases of corporate bonds and commercial paper in March as planned.As tightening steps go, that’s on a par with the European Central Bank’s promise to dial down quantitative easing from March 2022 onwards. There is no hint of either central bank raising interest rates next year.By contrast, the Central Bank of Russia hiked its key rate another 100 basis points to 8.5%. That follows interest rate hikes in the Norway, the U.K. and Mexico on Thursday (the last two of which were hawkish surprises). Colombia is expected to raise its key rate by 0.5% later.4. German gloom deepens despite signs of inflation peakingThe gloom continues to deepen in Europe’s largest economy: German business expectations, as measured by the Ifo Business Climate index, fell for a fifth straight month in December as the services sector was hit by the latest wave of Covid-19. The main index, which incorporates current conditions, fell to its lowest since March.There were, however, signs of a possible turn for the better. German producer prices rose by only 0.8% in November, the smallest rise in eight months, while car sales in both Germany and around Europe picked up from October’s disaster, suggesting that the worst of the industry’s supply chain problems may be behind it.Eurozone inflation also turned out weaker in month-on-month terms than expected: the core rate was flat while the headline rate rose ‘only’ 0.4%, due largely to surging energy prices.5. Oil continues to suffer from demand fearsCrude oil prices fell back, on concerns that spreading restrictions on mobility and rising fear of infection will hurt demand in the near future.By 6:30 AM ET, U.S. crude futures were down 1.8% at $71.09 a barrel, while Brent crude was down 1.7% at $73.72 a barrel, unimpressed by a forecast from Goldman Sachs that prices could hit $100 in the new year as global demand rebounds a new all-time high.Elsewhere, the extent to which the world economy still relies on dirty fossil fuels was spelled out harshly by the International Energy Agency, which noted that the amount of coal burned to produce electricity this year reached a new all-time high, due largely to output in China and India. More

Inflation has exceeded even the most pessimistic forecasts in recent months and the ECB nearly doubled its 2022 projection on Thursday, but continued to argue that longer-term price pressures are insufficient and price growth could dip back below its 2% target further out.Expressing doubts about these projections, Bundesbank President Jens Weidmann warned that the ECB may be ignoring inflation risks coming from higher wages and the transition to a climate-neutral economy. “The risks for the inflation rate are skewed to the upside, both in Germany and in the euro area as a whole,” said Weidmann, who will step down as head of the German central bank at the end of this month. “Monetary policymakers should not ignore these risks. We need to be vigilant.”Weidmann, a long-time critic of easy ECB policy, said German inflation is expected to remain above the euro zone central bank’s target for years to come. On Thursday, the ECB agreed to end an emergency stimulus scheme next March but topped up another bond buying programme and essentially ruled out a rate hike in 2022, ensuring rock bottom rates for months to come. Backing Weidmann’s warnings, Lithuanian policymaker Gediminas Simkus also warned that inflation could end up exceeding the 1.8% the ECB is predicting for 2024.”The risk balance is tilted towards higher inflation, due to Omicron, uncertainties, lasting supply side disruptions, higher energy prices, contagion into production prices. And this means that GDP growth risks are to the downside,” Simkus said. Several ECB policymakers challenged the bank’s inflation narrative on Thursday, warning that current models may be inaccurate in such an extraordinary environment.Taking a more benign view, Finnish policymaker Olli Rehn said it was not a given that price growth would be stuck at a higher level but did acknowledge risks.”There is considerable uncertainty about the path which inflation will take and I’m well aware that rising inflation feeds through to our everyday lives,” Rehn, a moderately dovish member of the Governing Council, told a news conference. “However the factors that have been driving inflation this year will not themselves lead to a longer term upsurge in inflation, unless they are accompanied by second round effects and a wage-price spiral.” More

Most central banks have wrapped up meetings for the year, but they also raised a fresh set of questions for investors to mull over. U.S. data, meanwhile, should shed light on how consumers are holding up, given soaring prices and the fast-spreading Omicron COVID variant. Here’s your week ahead in markets from Ira Iosebashvili in Singapore, and Sujata Rao and Dhara Ranasinghein London. Take Five takes a break on Dec. 24 and Dec. 31, but looks forward to returning in the New Year.1/ DONE AND DUSTED?With December’s deluge of central bank meetings done and dusted, markets can cruise into year-end, right? Not quite. The Bank of England, for one, has left investors confounded for the second time in six weeks, as a surprise rate hike again raised questions about its communication style.The European Central Bank, in the spirit of Christmas perhaps, gave something to everyone – ending emergency stimulus next year cheers the hawks, opting for an open-ended existing asset purchase scheme makes the doves happy. Rising peripheral bond yields suggest some unease over easing support. And by raising rate hike prospects, the Federal Reserve appears to have set the agenda for a tumultuous 2022 as central bankers chart their paths to the exit, albeit at dramatically different paces. Central bank balance sheets: https://fingfx.thomsonreuters.com/gfx/mkt/klvyknowjvg/theme1612.PNG 2/ HOLIDAY CHEER VS HOLIDAY FEAR ‘Tis the season to be shopping, but just how cheerful are U.S. shoppers in the face of soaring prices and Omicron.Clues should come from the December U.S. consumer confidence index on Wednesday and November new home sales, consumer spending and durable goods orders on Thursday. U.S. consumer prices grew at their fastest pace in around four decades in November https://www.reuters.com/markets/us/us-consumer-prices-increase-further-november-2021-12-10. Any signs that rising living costs and pandemic fatigue are weighing on spending – which accounts for over two thirds of U.S. economic activity – will not make for comfortable reading at the Fed. After all, the central bank just doubled the pace at which it will cut bond purchases and signalled as many as three rate hikes for 2022. United States consumer confidence: https://fingfx.thomsonreuters.com/gfx/mkt/mypmnawqzvr/USTHEME1612.PNG 3/ BOJO TO GO GO? Two years after British Prime Minister Boris Johnson’s party swept elections, his tenure in office is wobbly.A revolt by 100 lawmakers, scandals, the loss of a parliamentary seat his party had dominated for 200 years https://www.reuters.com/world/britains-liberal-democrats-predict-big-upset-parliamentary-vote-2021-12-17, and a stuttering economy mean bookies are offering even money that he will be replaced in 2022. A majority of voters think he should resign, one poll found. Already, Brexit had capped Britain’s post-pandemic rebound. Now an Omicron “tidal wave” (Johnson’s words) spells more trouble. Private sector growth plunged in December to a 10-month low, PMIs showed, yet 5%-plus inflation may force the Bank of England into several rate hikes next year.On Dec. 22, final Q3 GDP readings may confirm Britain’s economy falling behind G7 peers https://www.reuters.com/world/uk/uk-economy-grows-06-sept-after-weak-summer-ons-2021-11-11. Unsurprisingly, British stocks’ 35% price discount versus global peers has not stopped investors from voting with their feet. UK economy: https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkygdzpx/Pasted%20image%201639651229258.png 4/CHILE CHOOSESChileans head to the polls on Sunday, ending a year full of political risk in Latin America, a region already haunted by income inequalities, volatile leaders, disappointing growth and a disproportionately high COVID-19 toll. Chile’s second round election pitches ultra-conservative Jose Antonio Kast against leftist former student leader Gabriel Boric in a knife-edge run-off. It’s the first presidential decider since the world’s top copper producer was rocked by protests two years ago.The regional election cycle continues in 2022. Colombia is scheduled to hold congressional elections in March and a presidential ballot in May. Brazil’s general vote in October will dominate investors’ focus, given the country’s economic weight in the region. So far, former leftist leader Luiz Inacio Lula da Silva has a comfortable lead in polls. Standard Chartered (OTC:SCBFF) Geopolitical Risk: https://fingfx.thomsonreuters.com/gfx/mkt/jnpweakeepw/Standard%20Chartered%20Geopolitical%20Risk.PNG 5/ MAKING SENSE OF CHINA Investors are trying to work out just what China’s top leaders meant when they said recently that next year would be all about economic stability and prudent monetary policy. The likes of JPMorgan (NYSE:JPM) peg growth estimates around 5%, close to what government advisers recommend. Possibly, policy will be tailored to fit the goal of “common prosperity” before the Communist Party’s 20th national Congress next year.But bond markets are confused. The central bank has infused cash into banks while trying to rein in a strong yuan. Yet, expectations for a cut in its main money market operation rate this week came to nought.Beijing’s goals of stability and deleveraging could mean banks’ lending benchmarks won’t change next week either. More

(Reuters) -European stocks were on track to book weekly losses on Friday as technology shares fell, tracking an overnight selloff in their U.S. counterparts, while investors fretted over the economic impact of the fast-spreading Omicron coronavirus variant.The pan-European STOXX 600 index dropped 0.6% in morning trade, erasing some of the gains from a day-earlier rally. The European Central Bank on Thursday slightly reined in monetary policy support, while the Bank of England hiked rates, a day after the U.S. Federal Reserve signalled plans to tighten rates in 2022. “Ahead of the meetings, markets were already very defensively positioned based on equity parameters. So when there was a hawkish surprise, the immediate reaction was for markets to go higher,” said Ankit Gheedia, BNP Paribas (OTC:BNPQY)’ head of equity and derivative strategy for Europe.”The growth factor stocks like tech are underperforming. Hawkish central banks could lead to higher rates which could drive equities with the highest duration (growth factor) to underperform.”Tech stocks fell 1.5%. Although they have shed nearly 3% in value this month, the sector is still up 27% for the year, far outperforming a 19% rise in the STOXX 600.Underscoring recent hawkish moves by central banks, data showed euro zone inflation surged to its highest rate on record in November, with more than half of the increase due to a spike in energy prices.Germany’s blue-chip DAX dropped 0.6% and was set to log its worst week in nearly a month after a survey showed business morale declined for a sixth month as Europe’s largest economy feels the effects of supply bottlenecks and COVID-19 restrictions.Auto stocks dropped 1.6% after European industry data showed the number of new vehicles registered dropped 17.5% in November on the heels of a global semiconductor shortage and supply snags.Airbus gained 0.9% after completing its third big win in 36 hours at the expense of Boeing (NYSE:BA) with an Air France-KLM deal.Italian diagnostics firm DiaSorin slumped 11.8%, after it forecast weaker 2022 sales as COVID-19 revenues plunged nearly 60%.French pharma group Genfit jumped 47.4%, tracking its best day in nearly a decade, after striking a long-term commercial partnership with Ipsen. More