President Biden kicked-off last week by announcing that Jerome Powell had won the two-horse race for the nomination of Federal Reserve Chair, in doing so extending his time as the most powerful economic official in the world for another four years. Biden said he would nominate the other runner, Lael Brainard, as Vice Chair. In addition, ‘President Biden still has three vacant seats on the Federal Reserve Board of Governors to fill, including the important position of Vice Chair for Supervision. The President intends to make those appointments beginning in early December and is committed to improving the diversity in the Board’s composition’, the White House press release stated.
The decision will be seen as a reward for Powell’s handling of the economy during the global pandemic, plus ensuring policy continuity in the face of heightened inflation and continued economic uncertainty.
During brief remarks following the nomination, Powell said he was committed to both keeping inflation in check and bringing the economy to full employment. ‘We know that high inflation takes a toll on families, especially those less able to meet the cost of essentials’ Powell said, adding ‘We will use our tools both to support the economy and a strong labour market and to prevent inflation from becoming entrenched’. Brainard echoed the tone, adding she was committed to putting working Americans at the centre of her agenda. ‘This means getting inflation down at a time when people are focused on their jobs and how far their paychecks will go’.
On Wednesday, after weeks of speculation, Joe Biden confirmed that the US will release 50 million barrels of crude from its Strategic Petroleum Reserve (SPR) in coordinated effort with Japan, China, South Korea, India, South Korea and even the U.K. in a combined attempt to ease the pressure of global oil prices. In total, the U.S. will release 50 million barrels from the SPR. Of that total 32 million barrels will be an exchange over the next several months, while 18 million barrels will be an acceleration of a previously authorized sale. ‘The President stands ready to take additional action, if needed, and is prepared to use his full authority working in coordination with the rest of the world to maintain adequate supply as we exit the pandemic’ the White House said in a statement. For context BP earlier this month said global oil demand was back above 100 million barrels a day.
Andrew Bailey, the Bank of England governor, seemed to have taken the ‘unreliable boyfriend’ tag to heart and signalled that he is essentially abandoning forward guidance as a way of guiding markets as to the likely path of interest rates. Bailey, answering questions at Cambridge University, said there were three forms of forward guidance and the one that is currently being used is ‘not so much forward guidance as a reminder of where we are’. Bailey said the method, put in place in 8 years ago by his predecessor, ‘is pretty hazardous and more hazardous in a more uncertain world’.
We had Thanksgiving on Thursday so away from the US markets were quiet, however, they sprang back into life late in the day as news that South Africa and five neighbouring countries had discovered a new, dramatically different Covid strain. Hong Kong also confirmed two cases.
Concerns surrounding the new mutation of the Covid virus hit equity markets hard with bonds rallying. In the foreign exchange market, the Japanese yen and Swiss franc rallied. Oil was also sold hard, down around 12%. However, overall volumes were on the low side due to the US holiday.
This week we have the last Non-farm Payroll of the year on Friday. We also have ISM and ADP. The Fed releases its Beige Book report Wednesday for the upcoming December 14-15 FOMC meeting; there are plenty of Fed speakers on the taps as well.
In Europe we have Spain and Germany CPI today with the Eurozone tomorrow. Eurozone October PPI will be on Thursday. Germany also reports November unemployment tomorrow along with retail sales and PMI on Wednesday. The Eurozone also reports October retail sales Friday. There are also a number of ECB speakers this week.
The big one in Asia will be China's manufacturing PMIs, due tomorrow, along with Japan’s industrial production. Wednesday brings Australia GDP, which probably contracted significantly in the third quarter, and South Korea trade.