EU, US say they can team up to hold China to account over ‘trade-distorting policies’

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Bloomberg

Central banks remain closed on rate bets as commodity prices soar

(Bloomberg) – Soaring commodity prices fail to trigger some of the traditional bond and currency responses Unlike recent commodity rebounds in 2008 and 2011, yields on treasury bills and currencies from major exporters like Australia barely budged. Likewise, the Federal Reserve’s preferred measure of inflation expectations has disconnected from commodity movements. The biggest buffer: the credibility of the central bank. Led by the Federal Reserve, policymakers have consistently doubled their lower long-term rates and “transitional” inflation projections. This has left investors hesitant to bet against commitments to keep the policy loose for the foreseeable future. “The big change this time around is central bank policy,” said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. The ultra-easy monetary policy “now weighs down currencies which would naturally have risen much more during a cycle where commodity prices are rising.” The Australian and New Zealand dollars – two major currencies whose fate generally depends heavily on trends in the commodities consumed. by China’s booming economy – are undoubtedly laggards. Each has increased by less than 0.3% in the past three months. The Canadian dollar, meanwhile, jumped more than 5% as the central bank signaled it may cut stimulus. The rapid rise in the loonie could give way to pressure on officials to slow development and curb capital inflows, as is typically the case with commodities soaring in Canada. the debate over global inflation in the wake of strong Chinese producer price data. Still, market reaction has been relatively subdued after the PPI figures – with 5-year and 10-year yields easing along with a weaker greenback. 2%, a level that officials have wanted to see passed for some time, as prices accelerated for materials as disparate as copper, cotton, rubber and wood, as well as semiconductors, in a context of disruption of supply and growing demand. times in the midst of an evolution – perhaps a revolution – of the central bank. The Fed’s commitment to making the economy run hot has rocked the markets in part because it means abandoning what has long been at the heart of their strategy: acting preemptively to curb inflation. brave, market participants are always wondering if they should trust this. Officials will act before the price spikes get out of hand and do more harm than good – offset by the full employment mandate. This message is being conveyed to Australian and New Zealand currency traders, while others , indications of tightening monetary policy “The Bank of Canada and the Norges Bank are the only central banks in the developed world to give an unambiguous signal that they are considering withdrawing monetary accommodation,” said Stephen Miller, consultant in Sydney-based investment at GSFM, a unit of CI Financial Corp. “The RBA beat the drums so aggressively by keeping the pedal on the metal that it worked to keep the Aussie lowe r despite soaring iron ore prices. A closer look at breakeven rates shows new evidence that investors are largely unresponsive to inflation concerns. The 10-year US breakeven point, which climbed to an eight-year high, does not send a clear message of runaway inflation relative to long-term trends. would be on an upward slope, analysts at Cornerstone Macro, led by former Fed chief Roberto Perli, said in a May 11 report. Yet the two are reversed, implying a market bet that inflation is temporary. Certainly, some of the usual correlations have collapsed due to other concerns related to the pandemic. The Philippine peso, which generally moves against oil prices, is relatively stable as inflation is mitigated by weak economic growth. This relationship underscores the central bank’s mantra these days that growth and jobs should remain a higher priority than prices. “The recent record metal prices are probably just the beginning,” Howie Lee, economist at Oversea-Chinese Banking Corp., said in a May 11 report. Chinese demand and investments in the green economy are expected to keep iron ore and copper, in particular, on the rise, he said. (Updates the currency data in the fifth, sixth paragraphs, and second chart). ahead with the most reliable source of economic information. © 2021 Bloomberg LP



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