Business sentiment in Germany improved in September for the fifth month in a row.

Ifo Index

The report published by the Ifo Institute on Thursday is an important sign that Europe’s largest economy is going through a solid recovery from the coronavirus shock experienced in the first half of the year.

The Ifo institute said its business climate index rose from 92.5 in August to 93.4 in September. This was the highest since February when the index was at 95.9 but was still below the forecast of a 93.8 figure.

“The German economy is stabilizing despite rising infection numbers,” said Ifo President Clemens Fuest in a statement, adding that companies once again evaluate their current business situation better than the previous month.

Japanese Outlook

The government of Japan raised its outlook for exports, factory production, and jobs in its September economic report, but said the overall assessment remained unchanged from last month and that Japan is still struggling with the coronavirus pandemic.

The world’s third-largest economy suffered its worst post-war contraction in the second quarter, but signs of recovery emerged after the government eased nationwide anti-virus lockdown measures in late May.

While the country continues to fight the epidemic, consumers and businesses are still wary. The government therefore revised down its view on consumer and business spending in its monthly report released on Thursday.

“The economy continues to remain in a heavy state due to the impact of the coronavirus, but it shows signs of recovery recently,” the report noted.

The Japanese economy contracted by 28.1% on an annual basis in the April-June period and entered a recession. While the government tried to soften the blow of the epidemic by announcing its a $2 trillion package of stimulus this year, the Bank of Japan further eased its monetary policy.

Fed Determined But Cautious

Officials at the US Federal Reserve have stepped up efforts to persuade investors that their monetary policy will remain eased for years to allow unemployment to drop and stressed that interest rates will remain close to zero until inflation reaches 2% and remains there.

At its regularly scheduled policy meeting last week, the Fed’s board pledged to keep interest rates close to zero until the economy reaches full employment and inflation rises to 2%.

Fed Chairman Jerome Powell said the economy has “a long way to go” compared to where it was in February, despite some recovery from the crisis.

“We need to stay with it … The recovery will go faster if there is support coming both from Congress and the Fed,” Powell told US lawmakers at a Congressional testimony, reiterating his call for Congress to continue fiscal assistance.

Both Fed Vice President Richard Clarida and Chicago Fed President Charles Evans made similar remarks on Wednesday, stressing that interest rates will not rise until the labor markets fully recover from the economic downturn caused by the coronavirus and prices reach the Fed’s target.

Referring to the Fed’s preferred price measure, Clarida said “rates will be at the current level, which is basically zero, until actually observed PCE inflation has reached 2%.”

Evans told reporters during a phone conversation that the Fed’s current $120 billion in bond purchases would be accelerated or otherwise strengthened by asset purchases early until the economy takes shape better.

Boston Fed Chairman Eric Rosengren said it may take longer for the central bank to meet this target if infections increase during the fall and winter, leading to slower growth.

“We’d be lucky to get 2% inflation within” four years,” Rosengren said at a virtual forum organized by the Boston Economic Club.

Asian Quake

Warnings by the Fed officials raised investors’ concerns about the resilience of the economic recovery from the coronavirus outbreak, as Asian stock markets fell on Thursday, on the worst day of the past two months.

The fall in Asia spread to Europe. Pan-European Euro Stoxx 50 futures fell 1.55%, German DAX dropped by 1.48% as FTSE futures lost up to 1.24%, but they retrieved some of their losses in the afternoon sessions.

Fed Vice President Richard Clarida said on Wednesday that unemployment and weak demand, which he described as the “deep trough,” continue to weigh on the US economy. Clarida called for more fiscal stimulus, noting that policymakers “won’t even start to think” of raising interest rates until inflation reaches 2%.

MSCI’s largest Asia-Pacific stock index outside Japan fell 1.93% in the afternoon session due to wide losses in the region, making its biggest daily drop since July 16.

China’s blue-chip shares fell by 1.6%, Hong Kong’s Hang Seng lost 1.7%, South Korea’s KOSPI index dropped by 2.59% amidst the tensions with the North, as Australian stocks lost 0.81%.

The Japanese Nikkei was down 1.11%.

LEAVE A REPLY

Please enter your comment!
Please enter your name here