Will Food Inflation Bite?
Manoj Pradhan, Global Economics Team, Morgan Stanley
Soaring grain prices are attracting a lot of attention in markets at the moment. Given the strong role that food prices played in emerging markets in the inflation spike of 2007-08, attention naturally centres on the role of food inflation. Is food inflation likely to push headline CPI inflation significantly higher? Are policymakers poised to head off any potential threat from food price inflation aggressively? We asked our EM country economics teams to give us their assessment of the impact of high food prices and how central bankers will approach this issue.
FX: Dollar Under Pressure - For Now
John Hydeskov, Senior Analyst, Danske Bank
There were several reasons for the turbulence. First, US data have been so miserable that many market observers have begun to question the robustness of the US recovery and even fear that the US central bank (Fed) might be forced to consider a new round of quantitative easing, i.e. extraordinary purchases in the government and mortgage bond markets. Second, US yields have hit new lows and the market has almost completely given up on rate hikes from the Fed within the next year. In contrast, European data have been surprising positively – perhaps because analyst expectations were at rock bottom – and the European bank ‘stress test’ at least did not make things any worse than they were. Finally, equity and commodity prices have risen on the back of solid global corporate earnings in Q2, and this has also helped floor the greenback.
United States – Jobs Are Easing, So Might The Fed
Martin Schwerdtfeger, Economist, TD Bank Financial Group
It was all about jobs and QE this week; not Her Majesty the Queen of England, if you were wondering, but rather Quantitative Easing –the practice of a central bank buying debt securities to boost money supply. We learned today that the US economy scrapped 131K non-farm jobs in July. Most of the decline stemmed from the departure of 143K U.S. census workers. Private sector jobs added 71K on the month, below market expectations. June private sector net hiring was revised significantly downward. The most discouraging aspect of the report is that it confirms, once again, that improvements in the job market will materialize very slowly. If the U.S. economy continues to create jobs at the speed it has showed since the labor market bottomed in December 2009, it would take roughly seven years to fully absorb the 8.4 million jobs lost to the recession. This is way too slow for an economy that needs private demand to fill the void that fading fiscal stimulus will generate in the coming quarters. More so in light of the latest personal income and spending data, which shows
BOE Inflation Report: King to Have Last Word, Not Sentance
Trevor Williams, Chief Economist at Lloyds TSB Corporate Markets
Nine months into a cyclical recovery and the debate over UK monetary policy has become increasingly finely balanced. On the one hand, the pick-up in growth and the elevated level of inflation have strengthened the case for a preemptive rise in interest rates to start soon. On the other, the degree of uncertainty about the durability of the recovery and the potential disinflationary forces that could yet emerge have raised the possibility that more, not less, stimulus may be required. So which is it - should sterling markets brace themselves for an impending rise in interest rates; or should they be prepared for a renewed round of policy stimulus to stave off the risk of a double-dip recession?
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Compiled by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical's, Intraday Trading, Weekly Spotlight, and Forex Trading Weekly Forecast
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