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LGT Navigator: ECB signals “recalibration, but no tapering yet”

September 10, 2021

The European Central Bank (ECB) has confirmed its monetary policy stance, but at the same time held out the prospect of a “moderate throttling” of its bond purchases under the PEPP corona emergency purchase program by the end of the year. However, the ECB President made it clear that this is a “recalibration” and not a tapering. Equity markets can therefore still count on an expansionary monetary policy from the ECB and the Federal Reserve, at least in the short-term.

ECB signals “recalibration, but no tapering yet”

The prospect of an extremely cautious approach by the ECB and the Fed, as well as better-than-expected data from the US labor market, initially provided a tailwind on the stock markets, but this quickly subsided again, as the continued support from monetary policy was largely already priced into prices. Following the ECB decision, the EuroStoxx 50 initially recovered the losses previously recorded, but then exited trading unchanged at 4'177.11 points. In New York, the stock indices closed weaker on Thursday. After an initially friendly start, the Dow Jones Industrial declined -0.43% to 34'879.38 points and the S&P 500 lost -0.46% to close at 4'493.28 points.

In Asia, stock markets recovered at the end of the week from the previous two days of losses. The MSCI index for Asia-Pacific equities outside Japan gained about +0.5%. In Tokyo, the Nikkei-225 gains one percent and in Hong Kong, the Hang Seng index rises +1.75%. 

“No tapering, but recalibration”

ECB President Christine Lagarde clarified that the slight throttling of the ECB's pandemic PEPP purchase program, which is in prospect for the end of this year, does not yet represent a real intention to reduce quantitative measures, or tapering, but rather it is a “recalibration.” At the same time, the ECB continues to keep its key interest rates at record lows, or partly in negative territory, in view of the still predominant downside risks for the euro economy against the backdrop of the delta variant, the slow vaccination campaign and supply bottlenecks.

New ECB forecasts: economic recovery intact, with slightly higher inflation

In its latest economic forecasts for the eurozone, the ECB assumes that the economy will recover more quickly from the corona slump – euro GDP fell by -6.4% in 2020 – than previously assumed. For 2021, the central bank holds out the prospect of GDP growth of +5.0% (previous forecasts +4.6%). Next year, the 19-euro countries are expected to grow by +4.6% (+4.7%), and for 2023 the ECB continues to expect an expansion of +2.1%. In its current assessment of the inflation trend in the eurozone, the central bank expects an annual inflation rate of +2.2% in the current year, slightly higher than the +1.9% anticipated in June. For 2022, the central bank expects consumer prices to rise by +1.7% (previously +1.5%) and by +1.5% (+1.4%) in 2023. As is well known, the ECB's target is an annual inflation rate of two percent, which may, however, be exceeded moderately at times.

Better than expected short-term US labor market data

Latest figures from the labor market showed a stronger than anticipated decline in initial jobless claims. Week-on-week, Initial Jobless Claims fell by 35'000 to 310'000 – the largest decline since the end of June. However, the overall situation in the US job market remains fragile, as shown by the recent disappointing employment growth.

China's producer prices rise to 13-year high

In China, producer-level prices rose in August at the fastest pace since August 2008. On an annual basis, the price level increased by +9.5%, driven mainly by higher commodity prices, such as industrial metals, coal or chemicals. Price developments at producer level have a delayed impact on consumer prices in some cases and, due to the strong integration of Chinese foreign trade, may have an impact on inflation rates at trading partners. So far, however, consumer price inflation in China remains extremely moderate. In August, the official inflation rate even declined from +1.0% in July to +0.8%, mainly due to lower food prices.

Supply bottlenecks and material shortages slow down German exports

German exports declined by -0.5% in July compared with the previous month, following a monthly increase of +1.3% in June. However, compared to the same period of the previous year, which was strongly affected by corona effects, German exports increased by +12.4%. If the pre-crisis level in February 2020 is used as a comparison, exports in July 2021 were +1.6% higher.


Economic Indicators September 10

MEZ Country Indicator Last period
08:00 GE Consumer Prices (July, y/y) +3.1%
10:00 IT Industrial Production (July, y/y) +13.9%
11:00 EZ ECB Lagarde speech
14:30 US Producer Prices (August, J/J) +7.8%
14:30 US Core Producer Prices (August, J/J) +6.2%


Earnings Calender September 14

Country Company Period
SZ Roche "Pharma Day"


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Source: LGT Bank (Switzerland) Ltd.

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