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Global supply disruptions could still get worse, central bankers warn

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Supply constraints thwarting global economic growth could still get worse, keeping inflation elevated longer, even if the current spike in prices is still likely to remain temporary, the world’s top central bankers warned on Wednesday.

The disruptions to the global economy during the pandemic have upset supply chains across continents, leaving the world short of a plethora of goods and services from car parts and microchips to container vessels that transport goods across the seas.

“It’s … frustrating to see the bottlenecks and supply chain problems not getting better, in fact at the margin apparently getting a little bit worse,” Federal Reserve Chair Jerome Powell told a conference.

“We see that continuing into next year probably and holding inflation up longer than we had thought,” Powell told the European Central Bank’s Forum on Central Banking.

Speaking alongside Powell, ECB chief Christine Lagarde voiced similar concerns, arguing that the end of these bottlenecks, once thought by economists to be just weeks away, is uncertain.

“The supply bottlenecks and the disruption of supply chains, which we have been experiencing for a few months … seem to be continuing and in some sectors accelerating,” Lagarde said. “I’m thinking here about shipping, cargo handling and things like that.”

VERY ATTENTIVE

Global inflation has spiked in recent months on a surge in energy prices, and the production bottlenecks are pushing prices even higher, raising fears that the runup, if it lasts long enough, could seep into expectations and raise the overall profile of inflation.

Indeed, Lagarde said the ECB would be “very attentive” to these second-round effects while Bank of England Governor Andrew Bailey, another speaker at the forum, said he would keep a “very close watch” on inflation expectations.

“If this period of higher inflation, even though it ultimately is very likely to prove temporary, if it lasts long enough, will it start affecting, changing the way people think about inflation? We monitor this very carefully,” Powell added.

The problem is that central banks, the main authority for controlling prices, have no influence over short-term supply disruptions, so they are likely to be bystanders, waiting for economic anomalies to self-correct without lasting damage.

“Monetary policy cannot solve supply side shocks. Monetary policy cannot produce computer chips, it cannot produce wind, it cannot produce truck drivers,” Bailey said.

Still, even as policymakers called for heightened attention to inflation, all maintained their long standing view that the spike in inflation would be temporary and price rises would moderate next year, moving back to or below central bank targets.

Concerns about “sticky” inflation have fuelled a debate about the need to unwind crisis-era stimulus measures, and comments from Wednesday’s panel reinforced expectations for the world’s biggest central banks to move on vastly different schedules, staying out of sync for years to come.

The Fed, the BoE and the Bank of Canada have openly discussed policy tightening while central banks in such countries as South Korea, Norway and Hungary have already raised interest rates, beginning a long road to policy normalisation.

The ECB and the Bank of Japan are meanwhile likely to be the last movers, exercising extreme caution after undershooting their inflation targets for years.

The ECB even refuses to discuss tapering and already signalled its tolerance for overshooting its inflation target as it would rather move too late than too early.

This sort of patience was only reinforced by Lagarde and Bank of Japan Governor Haruhiko Kuroda, even as both provided a relatively upbeat outlook on growth, arguing that their economies could be back at their pre pandemic levels in the coming months.

 

(Additional reporting by Leika Kihara, Howard Schneider, Dan Burns, David Milliken and Andy Bruce; Editing by Hugh Lawson)

Economy

China economy slows; officials say recovery ‘unstable and uneven’ – Al Jazeera English

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Officials say GDP grew at its slowest place in a year in the third quarter, amid power cuts, property woes and COVID-19 concerns.

China’s economy grew at the slowest pace in a year in the three months that ended in September, buffeted by power shortages, supply bottlenecks and sporadic outbreaks of COVID-19, increasing pressure on policymakers amid rising concern about the health of the property sector.

Data released on Monday showed gross domestic product (GDP) grew 4.9 percent in the third quarter, compared with a year earlier, the slowest since the third quarter of 2020. The growth was also below economists’ expectations with a Reuters poll of analysts expecting GDP to rise 5.2 percent and a poll by the AFP news agency predicting growth at 5 percent.

“We must note that current international environment uncertainties are mounting and the domestic economic recovery is still unstable and uneven,” National Bureau of Statistics (NBS) spokesman Fu Linghui said on Monday.

China’s economy, the world’s second-largest, expanded 7.9 percent in the second quarter, and 18.3 percent in the first quarter, which benefitted from comparison with the COVID-19-induced slump of early 2020.

Meanwhile, industrial production growth slowed further to 3.1 percent on-year in September.

“Growth was dragged down by a slowdown in real estate, amplified recently by spillover from Evergrande’s travails,” Oxford Economics’ head of Asia economics Louis Kuijs told AFP.

There are increasing concerns about the property sector with industry giant Evergrande struggling with more than $300bn in debt [Thomas Peter/Reuters]

The struggles of property giant Evergrande – struggling with debts amounting to more than $300bn – have been made prospective buyers cautious.

Kuijs noted there was an “additional hit in September” from electricity shortages and production cuts due to the strict implementation of climate and safety targets by local governments.

He added that the damage was visible in the slowdown of industrial output.

Victor Gao, vice president of the Center for China and Globalization in Beijing, told Al Jazeera the latest data was on the “lower side” but added that China remained “confident” it could reach growth of about 8 percent for the year.

“That would make China one of, if not the, best performers among the larger economies in the world,” he said.

Chinese leaders, fearful that a persistent property bubble could undermine the country’s long-term ascent, are likely to maintain tough curbs on the sector even as the economy slows but could ease some measures if needed, policy sources and analysts said.

“In response to the ugly growth numbers we expect in coming months, we think policymakers will take more steps to shore up growth, including accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies,” Kuijs told the Reuters news agency.

Premier Li Keqiang said on Thursday that China has ample tools to cope with economic challenges despite the slowing growth, and the government is confident of achieving full-year development goals.

Retail sales picked up to 4.4 percent – from 2.5 percent in August – with fewer virus containment measures in China, which has imposed swift local lockdowns over a handful of coronavirus cases.

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Stock Markets Today: EU economy, China GDP, Bitcoin, Squid Game – Bloomberg

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Good morning. Euro area economy vulnerable to shocks, China growth slows, Bitcoin rallies and Squid Game’s value. Here’s what’s moving markets.

Highly Vulnerable

European Central Bank President Christine Lagarde warned that the globalized nature of the euro area’s economy makes it highly vulnerable to systemic shocks from supply chain disruptions. Lagarde also said the current spike in inflation is unlikely to last, while vowing to continue aiding the euro-area economy as the fallout from the pandemic lingers. Supply bottlenecks, cost pressures, and a reopening letdown are already set to plague region’s third-quarter earnings season. 

Slowing Growth

China’s economy weakened in the third quarter, weighed by multiple headwinds from a property slump to an energy crisis. Gross domestic product expanded 4.9% from a year earlier, down from a previously reported 7.9% in the preceding quarter. People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group.

Bitcoin Rallies

Bitcoin rallied early Monday after falling over the weekend, ahead of an anticipated U.S. exchange-traded fund approval. It fell both Saturday and Sunday to nearly $59,000 before climbing over $62,000 on Monday. Bitcoin is in focus as the first futures ETF tied to the token may debut Monday, according to a filing. Analysts expect profit-taking and volatility surrounding the decision.

Squid Game

Netflix estimates that its latest megahit, “Squid Game,” will create almost $900 million in value for the company, according to figures seen by Bloomberg, underscoring the windfall that one megahit can generate in the streaming era. The show stands out both for its popularity, and its relatively low cost, at just $21.4 million, less than Dave Chappelle’s new special “The Closer”. The viewership details are likely to cheer investors, who have regained enthusiasm for Netflix after several bumpy months, partly because “Squid Game” has been so popular.

Coming Up…

European futures are steady while contracts on U.S. stock benchmarks are pointing lower after last week’s strong performance. Oil advanced after an eighth weekly gain with the market facing a global energy crunch ahead of winter. Meanwhile, Koninklijke Philips will be among the European companies announcing results on Monday while State Street will report in the U.S. Also, Apple will finally unveil its redesigned MacBook Pro, the first revamp in five years.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours. 

And finally, here’s what Cormac Mullen is interested in this morning

Hedge funds have given up betting against short-term Treasuries, at least one gauge of positioning shows. Net leveraged-fund futures and options positions in two-year notes turned positive for the first time since April 2018, according to the latest Commodity Futures Trading Commission data. Two-year Treasury yields have surged some 25 basis points since early June as traders brought forward wagers on Federal Reserve rate hikes. The flip to net-long could suggest fast-money funds see a pause coming in the short-term yield spike, though some of the positioning is likely part of broader bets on the direction of the U.S. yield curve. In the interest-rate market, a full hike is now priced in for September next year, with traders about 50/50 in calling for one in June. That’s an aggressive move in a short space of time now given so much uncertainty over the path for inflation and growth until then.

#lazy-img-380107657:beforepadding-top:56.25%;Leveraged funds turn net long two-year Treasuries futures

Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo.

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    Oil prices climb to highest in years as COVID recovery, power generators stoke demand

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     Oil prices hit their highest in years on Monday as demand continues its recovery from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel.

    Brent crude oil futures rose 87 cents, or 1%, to $85.73 a barrel by 0111 GMT, the highest price since October 2018.

    US West Texas Intermediate (WTI) crude futures climbed $1.12, or 1.4%, to $83.40 a barrel, highest since October 2014.

    Both contracts rose by at least 3% last week.

    “Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts from ANZ bank said in a note on Monday.

    “The jet fuel market was buoyed by news that the U.S. will open its borders to vaccinated foreign travellers next month. Similar moves in Australia and across Asia followed.”

    They added that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

    Still, supply could also increase from the United States, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the wellpad.

    The U.S. oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to Oct. 15, its highest since April 2020, energy services firm Baker Hughes Co said last week.

    China’s economy, meanwhile, likely grew at the slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

    The world’s second-largest oil consumer issued a new batch of oil import quotas for independent refiners for 2021 that show total annual allowances were lower than last year, a first reduction of import permits since these firms were allowed into the market in 2015.

     

    (Reporting by Jessica Jaganathan; Editing by Kenneth Maxwell)

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