Central Bankers Start to Pivot

Weekly Report - 02/07/2017

Global Central Bank Heads Tout More Hawkish Stance in Latest Remarks


After a week full of commentary and speeches from the heads of major global central banking institutions, the largely accommodative policy moves in the post-crisis years are gradually giving way to a more hawkish outlook for monetary policy.

Last Week

An abundance of observations from key global policymakers throughout the week underscored the more hawkish outlook for monetary policy as general economic conditions brighten.  This was mostly felt after European Central Bank President Mario Draghi highlighted the general advances in the Euro Area economy when it came to avoiding deflation, promoting GDP growth, and lowering unemployment.  These views were widely interpreted as a signal that bond purchases may be tapered during the second half of the year in a gradual form of tapering, spurring a rally in the Euro.

Adding to the general sense of optimism was Fed Chair Janet Yellen’s assertion that the banking system was stronger than ever and that another major crisis was not anticipated.  Meanwhile, on the data front, final first quarter GDP figures from the United States and United Kingdom were announced.  The UK figure remained unchanged relative to earlier estimates, staying at 2.00% annualized growth while quarterly expansion printed at 0.20%.  The US figure was revised higher, with the final number coming in at 1.40% compared to the 1.20% reported a month earlier.  Inflation data from Japan was not quite as upbeat, with the core and headline figures coming in at 0.40% despite the improvement in household spending fundamentals.


The Week Ahead

The major unfolding developments in the sessions ahead are purchasing managers’ indices from across the globe.  Starting out in China, the Caixin Manufacturing PMI is expected to slip further into contractionary territory, underscoring the challenges facing policymakers as they attempt to preserve growth and cool housing momentum.  Services and manufacturing PMI data will also be announced by the Euro Area alongside comparable figures from the United Kingdom and the United States.  Although no major surprises are anticipated, the figures will be carefully monitored for any signs of fading expansion after a strong start to 2017.

Switching gears, the Euro Area is set to report the latest unemployment figures, with the jobless rate projected to fall to 9.20% in May.  The United States and Canada will concurrently be reporting on their own labor markets, with US nonfarm payrolls expected to rebound while the jobless rate stays on hold at 4.30%.  Canadian unemployment is forecast to remain unchanged at 6.60% for the month of June.  Finally, on the policy front, the FOMC will be unveiling its latest meeting minutes, potentially indicating the Fed’s level of hawkishness.  The Reserve Bank of Australia will also be announcing its latest policy decision, with markets forecasting no change in the benchmark interest rate.


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