Bank lending rose by RMB 1.28 trillion, well below consensus expectations of RMB 1.56 trillion, while aggregate financing to the real economy (AFRE), which includes loans and bonds, recorded net growth of RMB 1.85 trillion (against expectations of RMB 2.25 trillion). As a result, China’s M2 money supply declined from +9.4% y-o-y in March to +8.1% y-o-y in April. It has returned to pre-Covid levels in 2018/19.
JINYUE DONG & LE XIA (BBVA Research) | The PBoC started to exit the above easing measures in May 2020 when the Covid-19 pandemic got controlled in mainland China. Historically, the exit of easing monetary measures in the post-crisis time has always been a global challenge to central banks. China is not an exception in this respect. In February 2021, the normalization progress in China led to the gyration of the interbank interest rate in February 2021, just before the Chinese Lunar New Year as the investors’ fear of the authorities’ fast tightening climbed to a new high.
Intermoney | The progress made in the economic recovery has prompted the Bank of Canada to reduce net purchases of Canadian government debt by 1,000 thousand. CAD 1,000 billion to CAD 3,000 billion as of next week. A move that was supported by a very positive forecast for the world economy, projecting global GDP growth of 6.8% in 2021, 4.1% in 2022 and 3.3% in 2023.
Fabrice Jacob (JK Capital Management-La Francaise) | As we are approaching the end of the year, it is time for us to stick our neck out and make some predictions for 2021, especially for our key investment universe that is China, which has been a star performer for the second year in a row (MSCI China gained 20.4% in 2019 and so far this year, as at 11th December 2020, another 23.3%).
Flosbach von Storch | National debt-to-GDP ratios have already reached historic highs. Gross national debt will likely exceed 260 per cent of GDP in Japan by the end of the year, and reach around 140 per cent in the USA and around 100 per cent in the eurozone. Concerns about the high level of debt being unsustainable in the long run are at least theoretically unjustifiable as long as interest rates and government bond yields remain close to zero. This is because zero interest rates allow practically any deficit or mountain of debt to be easily funded.
Monex Europe | Recent meeting minutes and speeches have made it clear the FOMC is considering a range of possible calendar and outcome-based forward guidance. The likeliest outcome is further formalisation of the Fed’s shift away from viewing maximum employment as a constraint that will lead to rate hikes. Powell’s speech may provide a template for what outcome based guidance could look like.
On Thursday September 10, the ECB will meet and present its updated macroeconomic table, which will give us a better idea of its expectations regarding the pace of economic recovery (the August PMIs showed signs of weakness after the strong rebound from the April lows). The central bank will also update its view on current and future inflation levels with data once again showing very contained prices and in a context where the Fed is willing to tolerate inflation above 2% to obtain this figure as an average.
David Page, Head of Macro Research at AXA Investment Managers | Federal Reserve Chair Powell delivered the first shared address to a (virtual) Jackson Hole Monetary Conference. He delivered the conclusions of the Fed’s Monetary Policy Review, a process that was started in early 2019, and was due to be announced earlier this year, before the pandemic delayed the release. The Review maintained the broad pillars of Fed policy making: a dual mandate with employment and price stability goals, with price stability defined as 2% over the long term. However, it made three changes…
Caixabank Research |Monetary policy has reacted quickly and decisively to the COVID-19 pandemic. However, having successfully played the role of “fire-fighter”, the ECB will have to remain highly active to support the revival of the economy. In just four months the ECB has increased the size of its balance sheet by more than 1.6 trillion euros (+35%), as much as it did in the entire four years of the global financial crisis and the euro area’s double recession of 2008-2012. It took four years (2008-2012) to do so then.
Olivia Álvarez (Monex Europe) | The ECB will host its first 2020 monetary policy meeting next Thursday 23rd. The event is unlikely to bring any changes over policy tools after the accommodative package introduced in September, but rather, it could turn the attention towards any changes in the economic outlook facing the Eurozone and the strategic review vowed by new chief Christine Lagarde.