Daily Picks Thursday: What the World’s Top Central Banks Will Do Next
June 28, 2018
6 Min Read Time
Business Brexit Blues
- There are good reasons why so many businesses have finally decided to make their concerns public. They have lost all faith that the government knows what it is doing, and they have recently lost faith in parliament restoring any kind of sanity.
- This is no posturing, as figures for car industry investment show. These numbers will only jump back up once Brexit uncertainty ends if the final deal is a positive one as far as car makers are concerned. A UBS survey suggests that car makers are not unusual in this respect.
- Why are firms not excited by the opportunities in terms of less regulation and ‘global Britain’? They know global Britain is a myth: they can export perfectly well outside the EU as it is, and they are more likely to get a good trade deal with third countries by being in the EU than outside it.
- Those who say that a post-Brexit UK could do trade deals tailor made to UK business misunderstand what trade deals are mainly about nowadays. They are about harmonisation of regulations. And if a country is going to harmonise its regulations, it will do this with the EU rather than the UK because the EU is a much larger market.
- Any deal that is done will involve the UK still being subject to EU regulations, only without the UK having any effective say in how those regulations evolve.If we continue to bat away expert analysis as project fear we risk developing a kind of Republican anti-science attitude that is now official US policy.
China to lift ban on imports of UK beef - Hammond
- The agreement allows official market access negotiations to begin, said a government statement, adding that the process typically takes around three years.
- China is the world’s fastest growing beef market, with imports last year of 700,000 tonnes, worth about $3.3 billion.
- British beef exports to China are expected to be worth £250 million in the first five years.
- Beef imports from Britain have been banned since the 1990s following outbreaks of bovine spongiform encephalopathy (BSE), commonly called mad cow disease.
- This comes as China threatens a 25% tariff on U.S. beef in retaliation to President Trumps tariff's.
Powell Wants ‘Real Economy’ to Guide Fed
- Federal Reserve Chairman Jerome Powell is testing the economy’s room to run.
- It’s a strategy that contains both big benefits and risks for ordinary Americans and is causing excitement, tinged with caution, inside the central bank.
- In his first five months, he’s brought a subtle but important change to the chairmanship at a key juncture in the business cycle: trust evidence as much as economic models.
- “Let’s be guided by what’s going on and what the real economy’s telling us,” Powell said
- Fed researchers are digging into what low unemployment might mean for wages, inflation and the U.S. economy more broadly. One big idea: A tight labour market could improve labour force attachment and boost productivity. That’s a double win.
- Some Fed officials also worry that a long period of low interest rates amid scarce resources, including a smaller pool of available workers, could generate bubbles.
- Powell’s approach is closer to an earlier Fed chief -- Alan Greenspan -- who was an expert in “current analysis,” his own, often idiosyncratic, discipline of forecast updating that dove deep into esoteric economic data. It’s a hard act to duplicate.
- The strategy requires nimbleness and sometimes sharp changes in policy. A more data-dependent approach can be frustrating for investors who have been spoon-fed guidance by the U.S. central bank much of the past decade, because economic data are often noisy.
- Even as the unemployment rate dipped below 4 % and some types of compensation moved higher, the public’s inflation outlook has remained low and stable. So have overall price gains, averaging 1.7% over the past 16 months, according to the Fed’s preferred benchmark, below the central bank’s 2% target.
- Anchoring expectations was a hard-won victory, and the Fed wants to keep them nailed down. Officials raised rates on June 13 for the second time in 2018 and signalled another two moves this year.
Mnuchin Wins a Round in the White House Battle Over China
- Most of President Donald Trump’s top advisers had decided by Monday to recommend he invoke emergency powers under an obscure 1977 law to block China from acquiring U.S. technology companies and their intellectual property.
- Secretary of State Mike Pompeo provided a key assist, four people familiar with the matter said, siding with Mnuchin out of his own concern that an escalating trade war with China could hurt U.S. efforts to persuade North Korea to give up its nuclear weapons.
- Mnuchin has urged the President to reduce trade tensions and take a more conciliatory approach negotiated behind closed doors.
- White House trade adviser Peter Navarro, a China hawk, has pressed for the harshest measures.
- The two have clashed repeatedly, and Navarro has won previous rounds when Trump slapped tariffs on imported steel and aluminium and announced that he would levy duties on $50 billion in Chinese goods in July, decisions Mnuchin opposed.
Our Guide to What the World’s Top Central Banks Will Do Next
- Central banks around the world are unwinding the easy money they spent a decade injecting into the global economy to fight the fallout from financial crises and recession.
- Already this year, the Federal Reserve raised its key interest rate twice and the European Central Bank declared it would cease buying assets in December.
- Emerging market central banks such as Turkey and Argentina have tightened monetary policy even more aggressively.
- However, the Bank of Japan is maintaining massive stimulus and the People’s Bank of China is still leaning toward loose policy.
- The Fed is gradually raising interest rates to keep inflation under wraps, following a decline in unemployment to the lowest levels since 2000. Chairman Jerome Powell and his colleagues have hiked twice so far this year and signalled two more increases in 2018.
- The ECB is watching to see if the euro-area economy can bounce back from recent weakness. That’s all the more important now that the institution has decided to retire its bond-buying program at the end of this year.
- Escalating trade tensions with the U.S. are topping concerns.
- The BOJ is forging on with massive monetary stimulus while its peers chart a course for policy normalisation. There’s little prospect of any change soon, given inflation has stalled and remains less than half way to the BOJ’s 2% target
- The BOE is managing a puzzling economy that’s growing more slowly than its peers, combined with record-low unemployment and meagre wage growth. It’ll be tricky, but Governor Mark Carney and his colleagues reckon a few interest-rate increases will be needed over the next three years to contain inflation.
- Bank of Canada policy makers have been gaining confidence in the resiliency of the current expansion, and this should keep them on an interest rate hiking path that has already produced three increases since the middle of last year. With growth expected to remain above trend, investors expect Governor Stephen Poloz to move three more times by the middle part of next year, staring with another hike at his next rate decision July 11.