Another Big Week Ahead

I anticipated expanding the franchise to that younger cohort in my 2017 book, Political Economy of Tomorrow, and still suspect that more representative governments will move in this direction over time.

As fascinating as these developments may be, the Bank of England meeting may have a bigger market impact. The success of the vaccine rollout and the measured re-opening of the economy will boost official confidence that growth will strengthen. The recent string of data has been strong, and the central bank will likely pare back the magnitude of the contraction in Q1 and boost the current quarter's prospects. It is possible that with the economy opening sooner than may have been anticipated, that the growth is pulled forward a bit.

The BOE may safely anticipate that the economy will return to pre-COVID-19 levels. Officials may still talk about a high bar to a rate hike, and its inflation projections will remain below target. However, this says nothing about tapering, and that seems like a distinct possibility, even if not at the May 6 meeting.

While the Fed's Powell says it is premature to even talk about tapering, the BOE is likely the next central bank to indicate that the economic recovery will allow it to move past peak monetary support. It is possible to see it sooner, depending on several considerations, but late Q3 seems like a reasonable timeframe to consider.

Among the high-income countries, two other central banks meet in the coming days. The Reserve Bank of Australia will meet on May 4 in Sydney. It is in no hurry to reduce its monetary stimulus. The economy continues to recover. Despite the economy strengthening and the full-time job loss practically fully recouped, price pressures are modest, and the underlying rate (trimmed mean) rose 1.1% year-over-year in Q1, a record-low. Its current QE tranche will likely be complete in a few months, and a decision about another need not be made at this meeting.

On the other hand, its yield-curve control is on the April 2024 bond. It needs to roll that out to the November 2024 issue, which also buys it a few more months to decide about tapering. It is not seen as stopping "cold turkey," so that would imply at least another round of bond-buying, albeit smaller.

The RBA will update its quarterly forecasts at the end of next week, and the direction seems clearly to the upside. Also, a few days later (May 11), the government will present its budget, and the early indication is that it will support the economy. The more rapid recovery than anticipated means that deficit and debt ratio projections may also be lower.

Norges Bank, Norway's central bank, meets on May 6. At its March meeting, it left no doubt that it was in front of the line of high-income countries removing monetary stimulus. Specifically, it indicated that it could start raising rates earlier than it previously anticipated. It was explicit. The policy rate would likely be hiked in the second half of this year. Many have penciled in September. Neither the economic data nor the vaccine rollout is likely to spur a reversal of Norges Bank's forward guidance.

View single page >> |

Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.