13 September 2021
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ECB tapers asset purchases

By Daniel Richards

  • The ECB upgraded its growth and inflation forecasts to 5.0% and 2.2% respectively on Thursday, slightly higher than the June forecasts. GDP growth for 2022 was revised slightly lower to 4.6% (4.7% previously) while inflation is expected to moderate to average 1.7% next year (1.5% previously), well below the 2% inflation target. With a more optimistic outlook for growth, the ECB also “recalibrated” its asset purchases, saying it would moderately reduce the pace of asset purchases compared with the previous two quarters. This could mean a reduction to EUR 70bn per month relative to EUR 80bn previously, but would still maintain “favourable” financing conditions. Discussions about when the PEPP will come to an end and whether the Asset Purchase Programme will be amended have been postponed to the December meeting.
  • UK economic data for July was disappointing.  GDP rose by just 0.1% m/m (consensus forecast 0.5%), manufacturing production was flat m/m and construction output declined -1.6% m/m in July), also well below forecasts. Rising numbers of coronavirus cases and shortages of both materials and labour have likely weighed on the recovery.
  • The UAE government has announced a benefit and subsidy package worth AED 24bn (USD 6.5bn) to incentivize UAE nationals to take up jobs in the private sector.  The additional payments (including supplemental income, bonuses and paid training programmes) will help to close the gap between public and private sector benefits and aims to boost UAE national employment in the private sector by 75,000 over the next five years. The government wants 10% of private sector workers to be UAE nationals by 2026. Official data show UAE nationals made up 3.78% of the total private sector workforce in 2020.
  • CPI inflation in Egypt rose to 5.7% y/y in August, compared to 5.4% the previous month. The pace of m/m inflation slowed to just 0.1% however, from 0.9% in August. Food prices were the key driver of the acceleration in annual price growth, and recent PMI surveys suggest that there is scope for further pass-through from upward global price pressures associated with shipping and raw materials to consumer prices in Egypt. Nevertheless, we think a hike by the CBE to the benchmark overnight deposit rate from its current 8.25% at this Thursday’s MPC meeting is as unlikely as a cut.
  • Newly installed Lebanese Prime Minister Najib Mikati announced his new cabinet of technocrats over the weekend. The government has been approved by President Michel Aoun and is expected to be signed off by parliament this week. Mikati has signalled his desire to engage with external stakeholders such as the IMF in a bid to turn the country around from its current economic and financial crisis. The development has been welcomed by external parties such as France’s President Macron, and potentially paves the way for the release of billions of dollars pledged in Paris in 2018, but which remain dependent on tangible economic reform. A new prime minister has also been appointed in Morocco following elections last week; Aziz Akhanouch will now set about forming his government.
  • Unemployment in Turkey climbed to 12.0% in July according to data released last week, up from 10.6% in June. The composite measure of labour underutilisation rose from 22.4% to 23.6%. A rise in the jobless rate was expected as government pandemic-related support packages expired at the start of July.

This week’s key economic data and events

  • Tue 14/09 UK ILO unemployment rate forecast 4.6%
  • Tue 14/09 US CPI (Aug) forecast 0.4% m/m and 5.3% y/y
  • Wed 15/09 UK CPI (Aug) forecast 0.5% m/m and 2.9% y/y
  • Thu 16/09 US Retail Sales (Aug) forecast -0.8% m/m

Fixed Income

  • US Treasury yields nudged higher during a volatile week where markets absorbed the impact of the weak August NFP. Yields on the 2yr UST ended the week at 0.2127%, marginally higher, while the 10yr added around 2bps over the week to settle at 1.3411% thanks to a big upward move on Friday.
  • This week the US CPI report (released on September 14) will set the tone for Treasuries. Market expectations are for a moderate slowdown in the pace of price growth to 5.3% in August from 5.4% in July which may affirm the Fed’s transitory view of inflation.
  • The ECB announced its plan to adjust PEPP to a “moderately lower pace” until expiration in March next year. However, the ECB will still maintain pre-Covid asset purchases of around EUR 20bn per month. Bunds oscillated over the week on the ECB news, with 10yr bunds moving higher in the wake of the meeting which was less hawkish than expected and then fading those gains over the end of the week. Yields on 10yr bunds settled at -0.332%, up 3bps.
  • Emerging market bonds were offered across the board last week as risk appetites are tempered in the wake of moderating global growth. Yields on 10yr South African bonds added 6bps to 9.187%, Indian 10yr yields added 2bps to 6.18% while Turkish 10yr yields rose 17bps to 16.545% as markets endure more uncertainty on the outlook for monetary policy in Turkey.


  • The dollar snapped two weeks of losses as markets spurned risk last week. The DXY index added 0.6% to close at 92.582. This week’s inflation report will provide the next major catalyst for the dollar with any upside surprises likely to invigorate tapering and rate hiking views in the market and setting up more room to rally.
  • EURUSD showed some two way moves in response to the ECB’s plan for PEPP to occur at a moderately slower pace. However, waning risk appetite appeared to be the more compelling factor for currency markets last week with EURUSD dropping almost 0.6% to settle at 1.1814. Sagging growth in the UK along with plans to tax hikes helped to weigh on GBPUSD which fell 0.2% to 1.3839 at the end of the week. USDJPY edged higher to 109.94 amid the uncertainty around who will be next prime minister.
  • Commodity currencies took the brunt of the risk-off moves with USDCAD rising 1.3% to 1.2692 while AUD sank by 1.4% to 0.7356. NZD also fell although the decline was more limited at 0.6% to close the week at 0.7113.


  • Risk-off sentiment was prevalent in most of the world’s major equity indices last week, with the MSCI World Index losing -1.3%. Asia was the notable exception, with some sizeable gains for a number of key indices. In Japan, the Nikkei continued to enjoy its post-resignation bounce, adding 4.3% w/w, while the Shanghai Composite has also turned around, hitting its highest level in over six years with a 3.4% w/w gain. Indian markets were buoyant also as both the Nifty and the Sensex closing up 0.8% over the week. The outlier was South Korea’s KOSPI which lost -2.4%.
  • Concerns over slowing growth and rising Delta cases weighed on the outlook elsewhere. In Europe, the FTSE 100 was the biggest loser amongst the majors, dropping -1.5% w/w, while the CAC and the DAX lost -0.4% and -1.1% respectively. Losses were more pronounced in the US where the Dow Jones was the biggest loser, closing down -2.4%. The NASDAQ lost -1.4% and the S&P 500 -1.7%.


  • Oil prices ended the week higher after several volatile sessions. Brent settled up 0.4% at USD 72.92/b while WTI closed at USD 69.72/b, up 0.6%. The impact of Hurricane Ida is still affected supply in the US with production still shut in even as refining activity returns to normal. Output fell 1.5m b/d in the week the hurricane hit, to 10m b/d, while stocks of crude and gasoline drew sharply.
  • China also made a surprise announcement that it would release some of its strategic oil reserves to tamp down commodity prices in the country.
  • Even as risk appetite waned last week metals prices managed to move higher. Aluminium prices rallied in particularly thanks to uncertainty over the consistency of bauxite coming out of Guinea following political uncertainty in the country. Precious metals, however, declined with gold off by more than 2% last week to USD 1,788/troy oz.

Click here for charts and tables


Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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Daniel Richards

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