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Weekly financial market overview 07.06.-13.06.

News - June 14, 2021

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Konstantins Goluzins, CFA



Head of Asset Management
Phone.: (+371) 6700 0456
E-mail: trust@bib.eu

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Main events of the previous week

The ECB has kept the base interest rate on loans at zero. The rate on deposits also remained at the same level - minus 0.5%, the rate on short-term loans at 0.25%. The Governing Council expects key interest rates to remain at or below current levels until the inflation forecast steadily approaches below 2%. In addition, the regulator will continue the bond buyback program (PEPP) in connection with the pandemic - for a total of € 1.85 trillion. The ECB will conduct net purchases under the PEPP at least until the end of March 2022 or until it decides that the coronavirus crisis phase is over. PEPP purchases in the next quarter will continue to be at a significantly higher pace than in the first months of this year, the regulator said, adding that procurement will be flexible, in accordance with market conditions. The regulator also aims to prevent a possible tightening of financing conditions, which would prevent the reduction of the impact of the pandemic on the inflation target. Reinvestment of the main payments on securities purchased under the PEPP is planned to continue until at least the end of 2023. The ECB will also continue its € 20 billion monthly asset repurchase (APP) program. At the same time, the reinvestment of payments on securities purchased under this program will also take place long after the start of the phase of raising key interest rates. The third series of the long-term liquidity program for European banks, TLTRO III will also continue to support bank lending to firms and households. The Governing Council stands ready to adjust all of its instruments as necessary to ensure that inflation is moving steadily towards its goal. At a press conference following the meeting of the ECB Board of Governors, the head of the financial regulator Christine Lagarde said that the Eurozone’s GDP in 2021 will grow by 4.6%, which is significantly higher than the March forecasts. Over the medium term, the Eurozone economic recovery is expected to be supported by stronger global and domestic demand, as well as continued support for both monetary and fiscal policy. At the same time, Lagarde added that this estimate is widely represented in the baseline scenario of the ECB's macroeconomic forecasts for June 2021. These projections assume annual real GDP growth of 4.6% in 2021, 4.7% in 2022 and 2.1% in 2023. Thus, compared to the March estimates of the ECB, the GDP growth forecast has been revised upward for 2021 and 2022, while for 2023 it has remained unchanged.

Following the G7 summit held in Britain, the leaders of the G7 countries issued a joint communique, in which they highlighted agreements on three main topics of the meeting: the fight against coronavirus, economic recovery and climate change. The event began last Friday and ended Sunday in Cornwall, England, with the participation of leaders from the UK, USA, Canada, Japan, France, Germany and Italy. The parties agreed to allocate one billion doses of vaccine to poor countries and to increase the production of drugs around the world. At the end of the meeting, the host of the summit, Boris Johnson, said that there can be no nationalistic approaches to the issues of worldwide vaccination. According to the British Prime Minister, this global project will demonstrate to the whole world the advantages of Western democracies that make up the G7. Funds will also be allocated to improve mechanisms for the prevention and prevention of pandemics. In addition, the G7 countries agreed to jointly support scientific projects, the purpose of which is to accelerate the development of vaccines in the event of a new viral threat. In terms of the global economy, the summit participants agreed that providing one-time assistance to poor and developing countries to overcome crises is an important but insufficient measure. G7 members intend to consider more orderly investments in the economies of a number of countries, in particular, in the development of labor markets. In particular, the authors of the document intend to create conditions for education of 40 million girls in poor countries by 2026. The G7 members also intend to limit China's influence on world trade and challenge practices that, as the document says, "undermine the fair and transparent functioning of the world economy." In addition, the leaders called on the Chinese leadership to respect human rights, especially with regard to the ethnic Muslim Uyghur minority. In terms of climate change, the G7 partners have conceived the so-called "green revolution", thanks to which they expect to limit the rise in global temperatures by no more than 1.5 degrees Celsius. They also committed to achieving zero carbon emissions by 2050, halving emissions by 2030, and protecting at least 30% of land and oceans by 2030.

Economic data

US. The consumer price index in May increased by 0.6% versus April, while the annual inflation rate was 5%, which is the highest price increase since August 2008. The growth of the core inflation rate, excluding food and energy, amounted to 3.8% y/y in May.

The trade deficit in April amounted to $ 68.9 billion. Exports in April increased by 1.1% versus March, while imports decreased by 1.4% over the same period.

The number of initial jobless claims for the week was registered in the amount of 376 thousand, which is 9 thousand less than the previous week and 6 thousand more than predicted by analysts.

China. The consumer price index in May fell by 0.2% versus April, while the annual inflation rate was 1.3%.

The trade surplus in May amounted to $ 45.5 billion. Exports in May increased by 27.9% compared to May 2020, while imports grew by 51.1% over the same period.

Key events this week

  • On Wednesday, the US will publish data on changes in oil reserves for the week and the Fed will publish its decision on the key rate and give an assessment of the US economy, while China will report on industrial production, retail trade and the state of the labor market in May.
  • On Thursday, the final data on price increases for May will become known in the Eurozone, while the US will publish the number of initial jobless claims for the week.

The information provided herewith has an informative nature. This information cannot be regarded as an offer or recommendation for purchase, storage or sale of securities, or as an investment recommendation, an investment survey or a consultation on investments, or a recommendation to entrust management of your assets to the specific investment manager. The Client is fully aware and undertakes all risks involved in the investment. This information is prepared by AS Baltic International Bank.

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