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According to ECB, inflation will rise next year, jobless claims still in stagnation

The global economy is currently struggling with coronavirus impacts and is trying to recover from one of the harshest recessions ever to hit. Central banks marched into the battle with the arsenal of regulations some of them had never been heard of before. Goal number one is to keep employment rates or at least get people back to work as soon as possible. Because it’s their consumption what the economy needs for its expansion. Today’s jobless rate numbers suggest rather the opposite - employment stagnation. Meanwhile, the ECB restated the need for massive monetary stimuli. The fight is far from over.

 

Another week of stagnation for the US job market

Applications for unemployment benefits in the US only stagnated last week, indicating that large job losses persist. New applications grew by 884,000 last week, the same as last week. Ongoing applications for support grew by another 93,000 to 13.4 million. Unexpectedly high numbers of applications underline the uneven recovery of the US labor market. Many companies have re-launched hiring processes, but millions of people are still out of work.

At the same time, aid to small businesses is drying up in the US and some companies are announcing employee cuts. Even improvements in new applications in the coming weeks may not fully reflect the market situation, as the US Congress has still not agreed on the form of another fiscal package that would include unemployment benefits. Millions of Americans are on their way to long-term unemployment, which can exceed 27 weeks. Most states offer unemployment benefits for a maximum of 26 weeks, which is a duration that will be already reached this month by people who were laid off at the beginning of the pandemic.

Figure1: Jobless claims rates in the US (Source: tradingeconomics.com)

 

The ECB will monitor the Euro exchange rate

As expected, today's meeting of the ECB took place without any major changes in monetary policy. What was much more interesting was the fact that there will be a follow-up press conference. One of the biggest topics of recent weeks has been the rising euro and what rhetoric the central bank will choose when dealing with it. President Christine Legarder has been heard at the press conference that the growth of the euro must be monitored because of its impact on prices but did not explicitly signal the need to adjust monetary policy.

The volume of quantitative easing remains unchanged at 1.3 trillion euros and the deposit rate at -0.5%. Extensive monetary stimulus is thus still necessary. Among other things, the ECB has improved its GDP forecast this year to -8%. Leaving the inflation forecast for this year at 0.3%, but estimating inflation to accelerate at 1% next year. The euro began to strengthen immediately after the press conference and stopped at the 1.19 resistance on the EURUSD pair. The movement was also evident in other currency pairs, where, however, the US dollar is weakening.
 

 

Figure2: 1H EURUSD chart (Source: cTrader PurpleTrading)

 

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