Taxes and tapering

Posted by: Paul Donovan

08 Sep 2021

Daily update

  • More evidence that the world economy is doing better than first thought—Japanese second quarter data was revised stronger. The economy went deeper into deflation, but investment and consumer spending pushed growth higher. There were more pandemic restrictions in the second quarter (bars were not allowed to sell alcohol for a time, for example), but people are adapting to pandemic-related restrictions.
  • The UK government announced a 2.5% tax increase yesterday—although this only applies to the productive parts of the economy; unproductive areas are exempt. What will interest markets is how the Bank of England responds, and we are treated to countless Bank of England speakers today. The end to bond buying should not be affected (liquidity demand has fallen, so the bond buying is not needed) but the schedule for monetary policy tightening may be affected.
  • The Federal Reserve offers the Beige Book of anecdotal evidence. Like all survey evidence, this is subject to the effects of the media/social media echo chamber; but at a time when actual economic data is of dubious quality and distorted by misplaced seasonal adjustment, a sense of the general direction business is taking is useful.
  • French second quarter employment data was stronger. Previous data was inevitably revised higher.

Explore more CIO Daily Updates