December 14, 2021
What's Happening Today - Dec. 14
Lot’s going on this week as central banks around the globe are making announcements around their fiscal policy outlook for the coming year. Yesterday saw the update of the Bank of Canada inflation mandate, and today we see a fiscal update from Finance Minister Freeland. Ahead of the update, it is worth reiterating the message from our colleagues in CIBC Capital Markets Economics posting the announcement of the Bank of Canada’s inflation mandate. The new five-year mandate maintains a 2% inflation target and the 1-3% range. Separately, it says the Bank "will continue" to use the flexibility within the 1-3% band to seek full employment "when conditions warrant". That the mandate uses the words "will continue" implies that this is something that the Bank of Canada has already been doing, and "when conditions warrant" implies that the primary goal remains the achievement of the inflation target.
Down in the U.S., the release of PPI data is likely to pass by without significant incident. The key release of the week is set to be tomorrow’s retail sales report. Producer prices are likely to come out in line with expectations. An inline outcome is likely to be largely ignored in the context of the spike in CPI seen last week. While the Fed starts to deliberate today, the Senate is set to vote to lift the government’s debt ceiling to stave off the risk of default. The vote requires only a simple majority. Majority Leader Chuck Schumer has yet to detail how much the increase would be. A positive vote will result in the debt limit measure being sent to the House where Democratic leaders have promised quick action. The White House is continuing to attempt to cajole Sen. Joe Manchin into voting for a sweeping climate and social spending bill. After a call yesterday, Manchin told reporters that he had “a nice conversation” with the President and that he is “engaged”. Manchin went on to say that he and Biden “were just talking” about “different iterations” of the legislation. Can a deal be done by Christmas? Manchin replied ‘‘anything is possible.’’
Across the pond, European markets were mixed in choppy trade, as traders reacted to developments regarding the omicron Covid variant. While the focus this week is clearly centered upon the U.S. Fed, the upcoming European Central Bank meeting also risks proving significant. The upcoming meeting comes as they have to decide how to handle their own bond purchase wind down, they are set to transition from PEPP at the end of Q1.
Meanwhile, data in the U.K. showed employment remained strong in November, with 257,000 new jobs as the government furlough scheme came to an end. Markets head towards Thursday’s Bank of England decision against the backdrop of rising inflationary pressures and labour market resilience. We can expect November CPI, to be released tomorrow on the eve of the Bank of England decision, to register levels not seen in a decade. Annual prices are set to extend towards 4.8%, this comes as the 2008 and 2011 highs at 5.2% risk being threatened into Q1. Beyond the current upswing in immediate inflationary influences, the Bank of England also has to be mindful of the fact that the latest inflation expectations survey advanced to 3.2%, a tick below an eight-year high. Although expectations have yet to become materially de-anchored from target that has to be a factor under Bank of England consideration.
Asian-Pacific markets closed lower as the omicron variant returned to focus and Chinese property shares sank to a nearly five-year low. The Asian Development Bank cut its growth forecasts on developing Asia for this year and next to reflect risks and uncertainty brought on by the new Omicron coronavirus variant.
Finally, oil fluctuated as continuing uncertainty over the omicron variant’s impact on demand was offset by an increase in OPEC’s demand forecast for next quarter.
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