Gold Tests Support, Inflation Tests Weidmann
Bundesbank leader Weidmann cited a newly found Galapagos turtle in his speech on Monday. The species was thought to be extinct for 100 years but one was found last month in May. He said inflation has also been written off but it's not dead.
He warned that upside risks are now predominant in the eurozone. Most importantly, he said the preconditions for curbing pandemic emergency bond purchases have now been met.
Weidmann and other hawks are increasingly framing pandemic measures against the coming end of the pandemic. They argue that they agreed to measures during the pandemic but not afterwards. Doves want to let the programs run because of fears about repeating premature tightening following the financial crisis.
In the eurozone, the doves will undoubtedly win and that's why the euro was little moved by Weidmann. Globally though, the hawks are finding receptive audiences.
Much is different about this crisis. The financial crisis left scars and a legacy of austerity. This time, governments won't pull back quickly and that changes the calculus for central banks.
In its monthly manufacturing survey, the Dallas Fed had special questions on hiring. In June, 42.5% of companies said workers are looking for more pay than offered, which compares to 33.8% in April. Supply chain complaints have exploded as well with nearly half of companies expecting them to last for at least seven months.To start the week though, the market was tentative with commodities and commodity currencies lower. Treasury yields also took back Friday's advance. It's month/quarter end so flows could be tricky through Wednesday.
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