Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business
Growth worries are weighing on the markets amid warnings of an economic slowdown on both sides of the Atlantic, as the pandemic continues to disrupt global supply chains.
Anxiety about an economic slowdown has heightened, after the US Federal Reserve warned that the US economy “downshifted slightly” in August, amid rising coronavirus cases and mounting supply chain problems and labor shortages.
In its latest round-up of current US economic conditions, the Fed warned that the renewed surge of the coronavirus has hit dining, travel and tourism, saying:
“The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.”
The Fed’s ‘Beige Book’ also flagged that businesses are suffering inflationary pressures, and struggling to obtain raw materials and parts, and to hire staff (a familiar tale this year).
“With pervasive resource shortages, input price pressures continued to be widespread.”
Firms also reported:
“substantial escalation in the cost of metals and metal-based products, freight and transportation services, and construction materials,”
This dampened the mood on Wall Street a little, and has knocked Asia-Pacific shares today. European markets are expected to fall too, adding to yesterday’s drop.
Japan’s Nikkei 225 is down 0.7%, while Australia’s S&P/ASX 200 has slumped 1.9%, Hong Kong’s Hang Seng has lost 2% and South Korea’s Kospi 200 is down 1.75%.
Hong Kong’s tech giants led the sharp sell-off after China further tightened its grip on the gaming sector, summoning firms including Tencent and NetEase to ensure they implement new rules for the sector.
And in a sign that the pandemic continues to cause disruption, Japan said on Thursday it will extend emergency COVID-19 restrictions in Tokyo and other regions until the end of this month.
The move is meant to curb infections and prevent hospitals from being overwhelmed, with Tokyo saying it was too early to let down its guard.
The Bank of England also sees signs that the UK’s recovery is slowing, as the supply of goods remains disrupted and firms struggle to fill vacancies.
Governor Andrew Bailey told MPs:
At the moment we’re seeing some levelling off of the recovery, the short term indicators are suggesting that.
The Bank’s governor suggested that Covid disruption to global supply chains, which have upended industries from car making to hospitality, had proved more persistent than expected by Threadneedle Street earlier this year, as higher rates of coronavirus infections and heightened demand for manufactured goods put pressure on shipments.
He said there had been an expectation that consumer demand for goods would increasingly switch to services as pandemic restrictions were relaxed, but that had so far not happened as much as expected.
“There’s this underlying story of imbalanced demand, which we thought would by now have been well on the way to correcting itself,”.
The European Central Bank’s will assess the state of the eurozone economy, as it meets to set monetary policy.
Some ECB policymakers are pushing to ease back on its stimulus programme, after inflation hit a decade high.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
One of the reasons why the ECB hawks are coming back in charge is the rising inflation. The European CPI hit the 3% mark in August. The latest jump in CPI boosted fears among the inflation-sceptic member states such as Germany, Austria and Netherlands who started calling for tapering of the ECB’s asset purchases sooner rather than later.
The question is when and how? I believe that the divergent opinions at the heart of the ECB won’t let the bank make any sharp move in the close future. We would most probably see the ECB slowing its PEPP purchases, but a reduction in the total size of the pandemic program, a change in regular APP or a rate normalization are highly unlikely.
Today’s meeting will give away some insight about how the ECB will cope with the rising inflation and the stressed hawkish members, what the dovish-hawkish balance will look like and where the euro should be headed next. The chances are we will see President Christine Lagarde soothing the doves’ nerves at today’s press conference – which should trigger some weakness in euro versus the greenback in the short run.
We also get the latest round-up of UK economic indicators from the Office for National Statistics, and weekly jobless figures from the US — where vacancies hit a new record high yesterday.
- 7am BST: German balance of trade for July
- 9.30am BST: Business insights and impact on the UK economy
- 12.45pm BST: European Central Bank interest rate decision
- 1.30pm BST: European Central Bank press conference
- 1.30pm BST: US weekly jobless report