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Global Economy & Markets, Weekly Roundup 07/09/21

07/09/2021 - Reports

Global Economy and Markets

Euro area inflation edged significantly higher in August, with investors’ attention now turning to the ECB meeting
             
Key Takeaways
 
Inflation in the euro area jumped to its highest level since 2011 in August, with the headline CPI at +3.0% yoy from 2.2% yoy in July, well above consensus estimates for +2.7% yoy, while the core CPI reached +1.6% yoy, recording a 9-year high from +0.7% yoy in July (consensus: +1.4% yoy).

Meanwhile, according to the IMF Food Price Index, global food (producer) prices have increased by 42% since their trough in April 2020 and by 35% since July 2020, due to elevated demand for consumption and biofuels and reduced supply, due to, inter alia, the shortage of workers and the supply chain disruptions.

Following the surge in inflation, investors’ attention turns to the forthcoming ECB meeting on September 9th, with some officials putting forward the prospect of a possible reduction of the pace of PEPP purchases in Q4:2021.  

German political uncertainty ahead of the national elections on September 26th is elevated, as the election polls open up a wide range of possible coalition options. Specifically, according to the latest Infratest Dimap voting intention poll (survey period: Aug 30th – Sep 1st), the center-left SPD is standing at 25% (+7 pps since August 5th) and is leading for the first time since February 2017, while the center-right CDU/CSU stands at a record-low 20% (-2 pps).

The 5pps margin in favor of the SPD is the widest since 2001. Polls have tightened significantly since the start of 2021. Note that on January 16th, A. Laschet was elected as the new leader of the CDU party. Recall that in the last general elections in 2017, the CDU/CSU received the 32.9% of the votes and the SPD the 20.5%.

Furthermore, the Greens continued to lose momentum, as they currently stand at 16% (-3 pps), their lowest level since September 2018 and well below the 26% they reached in May when they temporarily had the polling lead. The center-right FDP stands at 13%, the far-right AfD at 12%, while the left-wing Die Linke at 6%. As far as the Chancellor preference poll is concerned, SPD’s O. Scholz is by far the most popular as it stands at 41%, CDU’s A. Laschet at 16% and Greens’ A. Baerbock at 12%.

Based on polls, only a three-party government could achieve the majority (>50%). The SPD leader and current Finance Minister commented that he would like to govern with the Greens, however there are differences with the FDP (tax policy) and with the left-wing (commitment to NATO), so post-election negotiations are highly expected.

Regarding the US labor report for August, nonfarm payrolls rose by 235K, recording their smallest increase since January. The latest reading was well below consensus for +750K, as payrolls in the leisure and hospitality sector were unchanged, following average increases of +350K/month during the past 6 months, due to, inter alia, the resurgence of the Delta variant and constraints in labor supply. However, on the positive side, net revisions for the previous two months took place (+134k), while the unemployment rate declined to 5.2% (its lowest level since March 2020) from 5.4% in July.