Early Warning Analysis: Global Macroeconomic Dynamics (October 2021)

Abstract:In October 2021, the United States, the European Union and Japan all maintained their current benchmark interest rates unchanged, while the Federal Reserve began to Taper its monetary policy by $15 billion per month since November, marking the beginning of a shift in U.S. monetary policy. In terms of data, thanks to the promotion of vaccines and the effect of various countries’ stimulus policies, leading macroeconomic indicators in the United States and Many European countries have further improved, but the economic recovery in some countries and regions has slowed down, and global inflation expectations have continued to strengthen.

I. Global policy dynamics

        The United States:The Federal Reserve kept its benchmark interest rate unchanged at 0-0.25%, excess reserve ratio at 0.15% and overnight reverse repo rate at 0.05% on November 3. The Fed noted that sectors of the economy most adversely affected by the pandemic have improved in recent months, but the recovery has been slowed by recurring COVID-19 outbreaks and temporary factors have contributed to high INFLATION in the United States. At the same time, with mass vaccination and strong policy support, economic activity and employment indicators in the US continue to strengthen, and substantial progress has been made towards the objectives required for tapering quantitative easing. The fed announced the opening of quantitative easing monetary policy exit mechanism, a month since November to reduce $15 billion < a href = "https://quote.fx678.com/symbol/USD" > < / a > asset purchases, including bond purchases to reduce $10 billion a month, Mortgage-backed securities are falling by $5bn a month. The tapering was in line with market expectations and paves the way for further rate rises. But the Fed also said it would keep interest rates at zero until the economy reached full employment. The Fed also stands ready to resume increasing its asset purchases if prospects for the recovery reverse.

        The European Union:The European Central Bank (ECB) on 28 October maintained its previous interest rate decision, leaving the marginal lending rate at 0.25%, the deposit facility rate at -0.50% and the main refinancing rate at 0% unchanged, and maintaining its accommodative monetary policy stance, stressing that the economic outlook remains uncertain and the ECB stands ready to adjust all its instruments as appropriate. To ensure that inflation remains stable at the 2% target over the medium term. However, the ECB reduced the pace of purchases under its emergency Anti-pandemic bond purchase Programme (PEPP) compared with the first two quarters of 2021, saying the PEPP facility need not be fully utilized if favourable funding conditions can be maintained. At the same time, the ECB forecast that euro-zone inflation would rise further as energy prices rose and demand recovered, before falling next year. The ECB is monitoring the impact of inflation on the euro’s exchange rate and will determine whether to launch additional stimulus measures in the future depending on how inflation moves in the coming months and how the economy performs.

        Japan:The Bank of Japan maintained its previous interest rate resolution and economic outlook on October 28, leaving the policy rate unchanged at minus 0.1 percent, the 10-year government bond yield target unchanged near 0 percent, and decided to extend the epidemic relief program until March 2022. The Bank of Japan said that due to the repeated impact of the epidemic, the Japanese economy is still in a severe state, with risks skewed to the downside but showing a trend of recovery. The Bank of Japan lowered its forecasts for output and exports and kept monetary policy steady. They reiterated that they would not limit the amount of government bonds they would buy, and did not rule out further easing of monetary policy if necessary.

II. Release of important global data
(I) The United States

        From the latest data released in The United States in October, several leading indicators continue to improve, and the inflation rate remains high. On the employment front, the unemployment rate fell further to 4.8% in September, down from 5.4% previously. The number of new non-farm jobs increased by 194,000, down 172,000 from the previous month. Weekly jobless claims have fallen to 281,000 from a peak of 927,000 since late January, as employment continues to improve. In terms of inflation, the year-on-year growth rate of CPI increased to 5.4% in September 2021, significantly higher than the Federal Reserve’s 2% inflation target threshold, and the sequential growth rate of CPI increased to 0.4%. PPI growth further accelerated to 8.6% yoY from 8.3%, while core PPI growth further accelerated to 8.3% yoy from 7.9%, as inflation expectations continued to strengthen. On the consumption side, core retail sales increased 0.7% month-on-month in September, while total retail sales increased 0.8% month-on-month. Total retail and food service sales increased 14.0% year-on-year, indicating continued improvement in consumption performance.

II. The European Union

        According to the latest data released in Europe in October, the manufacturing purchasing managers’ indexes of France, Germany, The UK and the EU as a whole were above the 50-point line, indicating that the manufacturing industry maintained growth. The corresponding PMI indexes were 55.0, 58.4, 57.1 and 58.6 respectively, but decreased by 2.5, 4.2, 3.2 and 2.8 compared with the previous value respectively. In terms of inflation, the year-on-year growth rate of CPI in Germany and eurozone rose to 4.1% and 3.4% respectively in September, while the UK’s CPI and core CPI increased by 0.3% and 0.4% respectively month-on-month, further strengthening inflation expectations. On the employment front, Germany’s unemployment rate stood at 3.4% in September, unchanged from the previous reading. In terms of economic situation, the ZEW economic sentiment index for Germany and the Euro zone in October was 22.3 and 21.0 respectively. The ZEW economic sentiment index decreased by 4.2 and 10.1 respectively from the previous value, indicating that the process of economic recovery in the European Union is further slowing down.

III. Other major economies

        Elsewhere, purchasing managers’ indices in Australia, South Korea, Japan, India, Italy and Canada fell to 51.2, 51.5 and 59.7, respectively. Manufacturing PMIs in South Korea, India and Canada rose to 52.4, 53.7 and 64.5, respectively, leaving the six countries above the 50-point line separating expansion from contraction. In terms of inflation, in September, the growth rate of South Korea’s CPI fell to 0.5%, Italy’s CPI rose to 2.5%, Canada’s CPI rose to 4.2%, Japan’s CPI rose to 0.1%, and India’s CPI-IW fell to 4.4%. The inflation levels of different countries showed differentiation. Overall global inflation remains high. On the employment front, Canada’s unemployment rate fell further to 6.9% in September, while Australia’s rose slightly to 4.6% and Japan’s held steady at 2.8%.

Article source：Ccic Country Risk Research Center