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  • richard evans

Will central banks coordinate tapering?

Good morning

Another day of little event and news yesterday, GBPUSD at 1.3755 and EURUSD 1.1805 which leaves EURGBP at 0.8580 (GBPEUR 1.1650). ECBs Knot and Holzmann both suggested ECB will need to assess asset purchases in Sept with a view to reducing them sooner rather than later. Both are usually on the hawkish side so the comments may not be a surprise but it does raise the idea that ECB will begin to look at reducing asset purchases in the coming months. Weidmann speaks later today and I’ll be looking to see if he also says anything about possible tapering. Otherise focus today very much on PMIs.

The last thing the markets need is huge volatility. I wonder whether Fed, ECB, BoE and the like will get together an announce some sort of tapering at or around the same time. This would keep the currency markets reasonably stable although I’m sure the same cannot be said of equities. I always like to think that central banks talk to each other for the good of the world, but my optimism could well be misplaced.

Some alarm bells ringing in China as Evergrande, a large property developer, warns of a possible default. For now China stocks are holding up but there is a worry that after the ongoing government crackdowns, confidence in China firms will drop. Asian equities actually made decent gains overnight with many indices up over 1%. It doesn’t feel like the right time for higher risk sentiment but I’m not going to complain.

On the Covid front, infection rates still rise. The last time I gave a total known global infection number it was at the end of April and stood at 150 million. At the end of August this figure stood at almost 220 million. As you know I expect infection numbers to increase significantly in the coming weeks, and I’m still expecting us to be getting a booster shot in the not too distant future as well. If I am wrong about infection rates then it is surely reasonable to say that a corner may well have been turned. I hope this is the case but a quick glance at Israel suggest otherwise. 78% of the population there over the age of 12 have been vaccinated but infection rates are well on the rise even for fully vaccinated people. Still, it is the unvaccinated who are most seriously affected but the Delta variant is still going strong while reduced vaccine effectiveness after several months will mean immunity wanes.

For what its worth I still wonder whether a severe one or two week lockdown every three months would do a good job. It effectively means everyone is isolating for a period of time, by the end of which no one, in theory, should be able to pass an infection on. Sounds a bit too good to be true but I reckon it would work. If we all knew about it in advance I reckon we could do it with little disruption.

Football training for the youngsters later today. With just a week or so to go before that start of the season I am faced with a big issue. The transfer deadline for the professionals may well be finished but I am still getting contacted on a daily basis by people wanting to join our team. There are eleven players on a team so a squad or 16 or is ideal. I currently have 20 and I have already had to turn away several players although I do have two coming to training today who may be just too good to turn away. If only they hadn’t left it until the last minute I’d probably have had enough to make two teams.

Talking of leaving things to the last minute though, my youngest tried his school trousers on yesterday ahead of his return next week. You guessed it, they are far too short. I knew he’d grown but not that much. The problem is, unlike his father, he is tall but very slim. Getting odd sized trousers a few days before school is a task that will fortunately fall on my wifes shoulders.

- 09.00 EU markit manufacturing PMI

- 09.30 UK markit manufacturing PMI

- 10.00 EU unemployment

- 13.00 ECBs Weidmann speaks

- 13.15 US ADP employment

- 14.30 CAD markit manufacturing PMI

- 14.45 US markit manufacturing PMI

- 15.00 US manufacturing ISM

- 02.30 AUS trade balance

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