[Good Morning Stock Market] Changing Liquidity Policies of Central Banks Worldwide... Investment Sentiment Slightly Weakened

Tiff Macklem, Governor of the Bank of Canada, "Interest Rate Hike Before Reducing Bond Holdings"
US Economic Indicators Weakened but Hard to See Trend Improvement Being Undermined

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As liquidity policies of central banks around the world change, investment sentiment showed some signs of contraction. Europe eased the pace of bond purchases while denying tapering of asset purchases, but Canada mentioned that the pace of stimulus policies would slow down. Meanwhile, concerns about economic slowdown grew as the August employment report showed weak results, but there were also forecasts that the economic recovery trend remains valid.

On the 9th (local time), the New York stock market all fell. On that day at the New York Stock Exchange, the Dow Jones 30 Average closed at 34,879.38, down 0.43% (151.69 points) from the previous trading day. It fell below the 35,000 mark for the first time since the 19th of last month. The S&P 500 index closed at 4,493.28, down 0.46% (20.79 points) from the previous session. The tech-heavy Nasdaq closed at 15,248.25, down 0.25% (38.39 points) from the previous trading day.

◆ Seo Sang-young, researcher at Mirae Asset Securities = The European Central Bank (ECB) raised its Eurozone growth forecast from the previous 4.6% to an improved 5.0% through its monetary policy meeting, raising expectations for economic recovery. Inflation forecasts were also revised upward from 1.9% to 2.2%, and it announced a gradual reduction in the pace of purchases under the Pandemic Emergency Purchase Programme (PEPP).

President Lagarde evaluated, "The Eurozone recorded strong growth this quarter, and the recovery is gradually progressing." She also decided to ease the pace of bond purchases but denied it was tapering, stating that additional discussions will be held in December and the tapering pace will be adjusted.

However, Tiff Macklem, Governor of the Bank of Canada (BOC), said that the pace of stimulus policies would slow further. In a virtual speech at an event hosted by the Quebec Chamber of Commerce, Governor Macklem emphasized, "When the BOC is ready to reduce the pace of stimulus injected into the economy, it will raise interest rates before tapering." This is interpreted as maintaining current stimulus but not increasing it in the future.

Michelle Bowman, a member of the Federal Reserve Board, hinted at tapering this year and mentioned that it may take more time for inflation to ease. As concerns about prolonged inflation increased, sell-offs emerged. In particular, changes in liquidity policies by central banks worldwide acted as a factor that dampened overall investment sentiment.

(Provided by Kiwoom Securities)

◆ Kim Yumi, researcher at Kiwoom Securities = From the 13th, major real economy indicators will be announced in the US and China, and attention should be paid to possible policy changes accordingly.

In the US, concerns about economic slowdown have spread further following the weak August employment report. The Fed Beige Book assessed that current economic activity is slowing moderately, and due to the negative impact of the spread of the COVID-19 Delta variant, sensitivity in financial markets is increasing.

Next week, many important economic indicators such as retail sales, consumer prices, consumer sentiment, and industrial production are scheduled to be announced in the US. Looking at market consensus, the consumer price inflation rate is expected to slow slightly, and the growth rates of major real economy indicators are expected to either slow or continue to decline. If results meet consensus, market concerns about economic slowdown are unlikely to ease significantly.

The August consumer price inflation rate is expected to be 0.3% month-on-month, slightly slowing from July. Although improved compared to July, the continued decline is a burdensome factor for consumption outlook. Service spending was expected to increase in the second half of the year, but revenge consumption was delayed due to the spread of the COVID-19 Delta variant, causing a consumption gap. Additionally, semiconductor supply disruptions have led to sluggish automobile production and sales, negatively affecting related production and retail sales.

This slowdown in US economic indicators could lead to expectations that the Fed may delay the timing of tapering. This may negatively affect investment sentiment in financial markets for the time being. However, considering that vaccine distribution is gradually expanding and employment conditions are improving, it is difficult to say that the US economic recovery trend has been damaged.