InvestMacro

The Central Bank of Brazil  issued the following statement:

“In its 235th meeting, the Copom unanimously decided to maintain the Selic rate at 2.00% p.a.

The following observations provide an update of the Copom’s baseline scenario:

·      Regarding the global outlook, the pandemic resurgence in some major economies is reversing previous mobility gains and should affect short-term activity. However, promising results in COVID-19 vaccine trials tend to improve confidence and growth in the medium term. Economic slack and central bank communication from major economies suggest monetary stimuli will last long, resulting in a favorable environment for emerging economies;

·      Turning to the Brazilian economy, recent indicators suggest the uneven recovery in economic activity continues, as expected. However, prospectively, uncertainty about economic growth remains larger than usual, especially for the period starting at the end of this year, concurrently with the expected unwinding of the emergency transfer programs;

·      The latest inflation readings were higher than expected and, despite the predicted retraction of food price pressures, December inflation should still remain elevated. In spite of the stronger short-term inflationary pressure, the Committee maintains the diagnosis that the current shocks are temporary, but continues to monitor closely its evolution, in particular the core inflation readings;

·      The various measures of underlying inflation are in levels compatible with meeting the inflation target at the relevant horizon for monetary policy;

·      Inflation expectations for 2020, 2021, and 2022 collected by the Focus survey are around 4.2%, 3.3%, and 3.5%, respectively;

·      The Copom’s inflation projections in its baseline scenario, with interest rate path extracted from the Focus survey and exchange rate starting at R$5.25/US$* and evolving according to the purchase power parity (PPP), stand around 4.3% for 2020, 3.4% for 2021 and 3.4% for 2022. This scenario assumes a path for the Selic rate that ends 2020 at 2.00% p.a., rises to 3.00% p.a. in 2021 and 4.50% p.a. in 2022; and

·      The scenario with constant interest rate at 2.00% p.a. and exchange rate starting at R$5.25/US$* and evolving according to the PPP yields inflation projections around 4.3% for 2020, 3.5% for 2021 and 4.0% for 2022.

The Committee emphasizes that risks to its baseline scenario remain in both directions.

On the one hand, economic slack may continue to produce a lower-than-expected prospective inflation trajectory, especially when the slack is concentrated in the service sector. This risk increases if a slower reversion of the pandemic effects lengthens the environment of high uncertainty and precautionary savings.

On the other hand, an extension of fiscal policy responses to the pandemic that aggravate the fiscal path or a frustration with the continuation of the reform agenda may increase the risk premium. The relative increase in the risks of these events imply an upward asymmetry to the balance of risks, i.e., in the direction of higher-than-expected paths for inflation over the relevant horizon for monetary policy.

The Committee believes that persevering in the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic recovery. The Copom also stresses that uncertainty regarding the continuation of the reform agenda and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate.

Taking into account the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to maintain the Selic rate at 2.00% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with the convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2021 and 2022.

The Committee deems as adequate the current level of unusually strong monetary stimulus, which is being provided by the maintenance of the policy rate at 2.00% p.a. and the forward guidance introduced in the 232nd meeting. The forward guidance stated that the Copom does not intend to reduce the monetary stimulus as long as specified conditions are met. The Committee judges that those conditions continue to hold. In spite of having increased since the last meeting, in particular for 2021, inflation expectations, as well as inflation projections for its baseline scenario, are still below the inflation target for the relevant horizon for monetary policy; the current fiscal regime has not been changed; and long-term inflation expectations remain well anchored.

The Copom judges that, since adoption of the forward guidance, inflation expectations reversed their declining trend relative to the target for the relevant horizon. Additionally, over the next months, the 2021 calendar-year should become less relevant than the 2022 calendar-year, for which projections and expected inflation are around the target. A scenario of inflation expectations converging to the target suggests that the conditions for maintaining the forward guidance may soon no longer apply, which does not mechanically imply interest rates increases, since economic conditions still prescribe an extraordinarily strong monetary stimulus. In case the forward guidance ceases to apply, monetary policy will follow the inflation target framework, based on the analysis of prospective inflation and its balance of risks.

The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso, and Paulo Sérgio Neves de Souza.”

www.CentralBankNews.info

By Orbex

Among major economies, the Eurozone has been done the least in terms of government stimulus spending.

Even at the level of the member states, stimulus spending has been comparatively low.

We’re still waiting on an agreement on the first stimulus spending program on the Union level. And at €750B, it’s relatively small as a percentage of GDP compared to other countries.

So, stimulus in the Eurozone has relied largely on support from the ECB.

We are heading into the winter with extended periods of lockdowns still expected until the vaccines are available.

Retailers are struggling after being forced into closures during key shopping months ahead of holidays. There are also increasing calls for authorities to do more to support the economy during the upcoming months.

All this is likely to fall on Lagarde’s shoulders at the last meeting for the ECB this year.

What We Are Looking For

There is a unanimous consensus that the ECB will keep rates where they are. That’s not the issue.

What we do expect is a barrage of new measures to help boost the economy ahead of the official start of winter. These will be somewhat of a stopgap until the budget is finally approved.

Here are some of the potential announcements:

1) There is a pretty strong consensus that the ECB will decide to increase PEPP buying (Pandemic Emergency Purchase Programme) by a further €500B. This will bring it to a total of €1.85T.

They could also extend the duration of the program to the middle of 2022. The market has already priced that in, but it would still likely be supportive of risk sentiment.

2) There isn’t as much consensus on this point, but it’s possible that the ECB might extend the range of bonds that it could buy. This includes so-called “fallen angels” corporate bonds.

This would be unexpected. It would help support European stocks, but might have a bit of a drag on the euro.

3) We might expect the bank to adjust the TLTRO program. This would be in an effort to boost bank lending and allow using mortgages for securitization.

This is a more controversial proposal and we’re not considering it to be likely.

But if they do announce it, this would also likely support stocks.

4) Finally, and something there is more consensus on, an expansion of the regular QE program (called APP)

What’s Not Likely to be Mentioned

Ever since Chief Economist Haldane voiced concerns over a strengthening euro several months ago, there was speculation that the ECB would step in to address the issue.

It is relevant to price stability, as a stronger euro lowers the cost of buying imported goods and undermines efforts to reach inflation targets.

Until recently, the 1.2000 handle in the EURUSD was seen as a “red line” for the ECB, but that was passed without comment.

But, while there is a possibility, it’s not so likely because the ECB is not really worried about too little inflation at this point.

A higher euro might offset some fears of a rebound in inflation as a response to stimulus spending. And Lagarde is likely to want to put her foot down in terms of leadership, to keep that issue from coming up.

If there is no comment on the exchange rate, it might give euro bulls some incentive to push the currency higher after the press conference.

By Orbex

By George Prior

Money – for the first time – is no longer the biggest taboo topic of conversation, according to an international poll.

In the global survey conducted by deVere Group, one of the world’s largest independent financial advisory and fintech organizations, 48% of those polled ranked politics as the most difficult subject to discuss with family, friends and colleagues.

It came ahead of personal finance (34%), sex and relationships (9%), religion (5%), and health issues (4%) in the study of 750+ clients. The respondents came from the UK, Europe, North America, Asia, Africa, Latin America and Australasia.

In the 2019 survey, 56% of those asked cited money as the hardest topic. It was the same in previous years too.

Of the findings, deVere Group CEO and founder Nigel Green observes: “This has been a year of immense political polarization around the world.

“Governments’ handling of the pandemic, and events such as the U.S. presidential election, Brexit, tensions in South Asia and in the Gulf, amongst other factors, have made things seem more divisive and partisan than ever.

“Therefore, it is perhaps of little surprise that 2020’s biggest conversation taboo is politics.”

He continues: “It’s been a highly unusual year and it’s very encouraging that personal finance – which includes income, taxes, pensions, debt, savings, expenses and estate planning – is now regarded as less taboo than in previous years. This is a good thing.

“The subject of money needs to be de-stigmatised.  Wealth provides people and their loved-ones with incredibly positive, life-enhancing opportunities, and if it is seen as unseemly to discuss there’s more chance that financial goals will go unrealised.”

One area of personal finance which has traditionally been regarded as ‘awkward’ to talk about is wills and estate planning.  This mindset has also shifted in 2020, says Mr Green for two key reasons.

“First, is the Covid-19 pandemic. Drawing up a will is not something anybody really rushes to do. But with alarming death tolls, infection rates and confirmed cases, there’s been an unprecedented focusing-of-minds in this area.  People are more aware than ever about what really matters: your loved ones” he notes.

“And second, the Great Transfer of Wealth. Tens of trillions of dollars of assets are to be passed down from the baby boomers – the wealthiest generation ever – to their children and other heirs over the next few years.

“As such, increasingly individuals are taking appropriate estate planning advice to avoid paying unnecessary inheritance tax and having beneficiaries miss out on their legacy.”

The deVere CEO concludes: “Money is a critical part of our lives, it gives us freedom, security and opportunity.

“It appears that 2020 has taught us that we need to get more comfortable discussing it.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

By Orbex

Dollar Looks for Respite

The US index rose slightly higher yesterday, just under 0.1%, as it achieved its third consecutive daily gain.

Persistent Brexit uncertainty, added with the upcoming ECB meeting, saw investors shift sentiment somewhat towards the dollar.

However, the greenback remains under pressure with the tussling of another round of stimulus hopes, which is becoming more political by the day.

House Speaker Nancy Pelosi called for a review of the Trump administration’s relief package, as it would cut unemployment insurance by $140 billion.

Euro Flirts with 1.21

The euro closed indecisively on Tuesday as it bounced off the 1.21 handle.

Investors are currently eyeing the upcoming ECB interest rate decision and meeting, as economists predict no changes will be made to the base rate.

GDP data across the eurozone showed that the European economy rose by 12.5% in Q3 after crashing by 11.8% in Q2. However, on an annualized basis, the economy weakened by 4.3%.

Boris Goes to Brussels

The pound closed 0.18% lower yesterday as the ongoing Brexit saga looks to be coming to an end.

Deal or no-deal, Boris Johnson will fly to Brussels today for last-ditch talks with the European Commission President.

Talks have ended in a deadlock for the majority of the talks, as the make-or-break moment comes shortly before the 31^st of December when the UK stops following EU trading rules.

Meanwhile, the first of 800,000 doses of the Pfizer/BioNTech vaccine that will be dispensed in the coming weeks took place yesterday.

When will other countries follow suit?

Indices Up as Investors Look to Vaccinations

Stocks rose on Tuesday as all three major indices ended the session by almost 0.5%.

Investors have noted the successful distribution of the Pfizer vaccine in the UK, with the FDA saying that the company has a favorable safety profile.

Economists can be confident that more antidotes will soon be distributed, as vaccine makers Johnson & Johnson and Moderna rose by 1.7% and 6.5% respectively. Pfizer, on the other hand, closed 3% higher.

Gold Maintains Momentum

Gold rose by 0.40% yesterday as the ascendency towards $1900 continued.

The yellow metal remained well supported despite positive vaccine updates. The increasingly shaky greenback has taken the negative sting out of further downside worries for gold.

How long until we reach another milestone?

API Weighs on WTI

Oil closed indecisively on Tuesday as it once again tussled with the $46 handle.

Markets were initially hopeful as Covid-19 vaccinations began. However, a crude build in the API data saw prices slip slightly.

We now look ahead at more Pfizer injection headlines to boost the black gold further.

By Orbex