Central banks are starting to monitor and move towards tightening. Let’s summarize this week’s meetings with key points.
Important financial meeting for week of December 20-24, 2021
- The Federal Reserve and Bank of England, all around inflation concerns, with some indications that higher inflation expectations (and higher wages) have can become entrenched if they choose not to act.
- Norges Bank: Norway’s economy is doing well, so governor’s comment that “When most economies are normal, rates should also reach normal levels” shows a view obviously to increase.
- ECB has managed to do what ECB has always done and offer something for everyone. The decision to increase APP program in March to smooth transition away from PEPP was welcomed along with assurances that the central bank would continue to buy bonds from peripheral economies such as Greece.
- The Bank of Japan will also dial in their corporate bond & commercial paper purchases in March, although they have opted to extend corporate funding facility until September.
- SNB asserts that Franc is appreciated.
There are many differences between central banks. While potential risks from Omicron variant have been noted, they are unlikely to influence decisions of policymakers.
Crude oil is main market
Oil is often a bridge to overall feel of economy. Omicron’s initial concerns led to a massive dismantling of long positions with the price of Brent crude falling from more than $80 per barrel to 65.63 per barrel in just a few days. Since then, we have seen price recover towards midpoint of a broader range ($85.80-$65.63). However, continued uncertainty limited recovery.
Here are a few considerations:
- Demand from Asia is falling
- International Energy Agency reports that oil market is back in surplus
- Omicron restrictions generally affect travel
- Tight monetary policy
However, demand remained strong with US inventories falling over past week. Lots of conflicting signals for market to consume. It wouldn’t be surprising if speculative traders took a break over Christmas period to reassess outlook for upcoming year, leaving prices swinging in a short-term range until outlook is clearer.