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Robust Rebound Won’t Augur End to Stimulus: Central Bank Guide

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Author of the article: Bloomberg News Bloomberg News Bloomberg News (Bloomberg) — The aggressive rebound in global economic growth still isn’t enough for most of the world’s central banks to pull back on their emergency stimulus. In Bloomberg’s quarterly review of monetary policy covering 90% of the world economy, the Federal Reserve, European Central Bank…

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Bloomberg News

Bloomberg News

Bloomberg News

Bloomberg News

(Bloomberg) —

The aggressive rebound in global economic growth still isn’t enough for most of the world’s central banks to pull back on their emergency stimulus.

In Bloomberg’s quarterly review of monetary policy covering 90% of the world economy, the Federal Reserve, European Central Bank and Bank of Japan are among the 16 institutions set to hold interest rates this year.

The outlook suggests officials still want to guarantee the recovery from last year’s coronavirus recession by maintaining ultra-low borrowing costs and asset-buying programs. That may require them to accept any accompanying bounce in inflation.

Six central banks, most of them in emerging markets, are still predicted to hike, including Brazil, Russia and Nigeria. Turkey is the only one of those monitored which is forecast to cut borrowing costs this year.

What Bloomberg Economics Says:

“For advanced economies, continued virus uncertainty, deep labor market scars, and a recognition that past decisions erred on the side of deflationary preemption will conspire to keep policy looser for longer. In many emerging markets, currency stress means central banks don’t have that luxury.”

–Tom Orlik, chief economist

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Here is Bloomberg’ quarterly guide to 23 of the world’s top central banks:

GROUP OF SEVEN

U.S. Federal Reserve

Current federal funds rate (upper bound): 0.25%Bloomberg Economics forecast for end of 2021: 0.25%

A key question for Fed Chair Jerome Powell and his colleagues is when to start talking about scaling back their massive bond purchases if the economy continues to recover as they expect.

Officials have vowed to keep buying $120 billion of Treasuries and mortgage-backed bonds every month until they see “substantial further progress” on inflation and employment. That test could be met sooner than anticipated if the U.S. labor market continues to perform as it did in March, when a better-than-expected 916,000 new jobs were added.

Powell has so far avoided putting any time frame around when he thinks it’ll be appropriate to slow bond buying, but promises to give investors plenty of advance warning. The Fed has also signaled it expects to keep rates near zero through 2023.

Officials at their meeting in March maintained that dovish message, according to a record of their discussion released on April 7, while Powell continues to stress the recovery remains incomplete and uneven.

Part of its hesitancy to talk publicly about bond purchases stems from harsh experience: The Fed wants to avoid a repeat of the 2013 taper tantrum, when unexpected news that it was thinking about slowing bond buying roiled financial markets and hurt the economy.

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What Bloomberg Economics Says:

“The U.S. economy may be launching into the fastest growth since 1983, but the Fed is firmly resolved to not only maintain the current stance of policy accommodation deeper into the recovery, but also to retract it more gradually under their new outcome-based framework for achieving its dual mandate. While Fed officials previously talked of seeing the ‘whites of the eyes’ of inflation before responding through policy tightening, the new framework is more akin to waiting to see inflation’s coattails — as the central bank is prepared to endure a ‘transitory’ overshoot of their 2% inflation target.”

–Carl Riccadonna

European Central Bank

Current deposit rate: -0.5%Bloomberg Economics forecast for end of 2021: -0.5%

The ECB has pledged to keep financing conditions for governments, companies and households “favorable” until the coronavirus crisis phase is over, using its 1.85 trillion-euro ($2.2 trillion) Pandemic Emergency Purchase Program to keep bond yields low, and dishing out ultra-cheap loans to banks.

PEPP is due to run until at least the end of March 2022 and while policy makers say they won’t spend the full amount unless needed, most economists expect them to do so. The euro-area recovery has been delayed by a slow vaccination rollout, and ECB President Christine Lagarde has repeatedly warned of the dangers of ending support too early.

The scene is set for a vibrant debate toward the end of the year on when and how to scale back emergency aid and what should replace it. In the meantime, the ECB is urging governments to hurry up with their 800 billion-euro joint recovery fund.

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What Bloomberg Economics Says:

“The ECB will continue buying bonds through its Pandemic Emergency Purchase Program throughout 2021. We expect acquisitions to be front-loaded in 2Q to tackle the rise in government borrowing costs before reverting to a slower pace for the remainder of the year.”

–David Powell

Bank of Japan

Current policy-rate balance: -0.1%Bloomberg Economics forecast for end of 2021: -0.1%

The Bank of Japan is likely to be keep its main policy settings on cruise control after its biggest policy review since 2016 in March. The review gave the BOJ more scope to reduce its asset buying after a fine-tuning it characterized as a shoring up of its stimulus framework for the longer term.

Despite fears of inflation elsewhere in the world, a quarterly outlook report in April is expected to show that the BOJ doesn’t see price growth reaching a stable 2% before Governor Haruhiko Kuroda steps down in April 2023. That will help back up the institution’s argument that it had to take a more flexible approach to policy.

Investors and economists will closely scrutinize how the changes will affect the BOJ’s market operations including its pace of bond and ETF buying, and how quickly it will step in to stop any jumps in 10-year yields after clarifying that its target range reaches up to around 0.25%.

BOJ watchers will also be looking to see if the bank extends its special pandemic funding measures from the current September expiry date. With bankruptcies falling and bank lending growing, there appears little reason to add to the measures supporting businesses. Still, with only about 1% of the population vaccinated in early April, uncertainties for the economy remain with virus cases ticking up again in some major cities.

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What Bloomberg Economics Says:

“The BOJ is preparing to shift from emergency pandemic support back to its long-elusive goal of 2% inflation. Adjustments to its yield curve control and ETF purchases add flexibility and endurance. It will be a protracted fight — even the BOJ sees inflation falling short of target over its three-year forecast horizon. It’s set to stay on hold for the time being — though it may need to accommodate more JGB issuance if the government steps up fiscal stimulus this summer.”

–Yuki Masujima

Bank of England

Current bank rate: 0.1%Bloomberg Economics forecast for end of 2021: 0.1%

Bank of England Governor Andrew Bailey is firmly on the fence about whether his next move is to administer another dose of stimulus or monetary tightening to the U.K. economy. Financial markets already have priced out the prospect of negative rates, moving gilt yields and the pound higher than they were a year ago.After the worst recession in three centuries, the U.K. is headed for a sharp rebound after one of the world’s most successful coronavirus vaccination programs. Debate at the central bank is about whether the recovery will absorb all the workers left out of a job during the crisis and push up inflation, or leave scars that require further care.While the latest data including a boom in house prices suggest upside risks, companies are increasingly concerned that Britain’s exit from the European Union has choked back trade, leaving the prospect of a painful restructuring of the economy after the pandemic clears. At the institution’s next decision on May 6, policy makers will weigh whether to ease the pace of bond-buying, which at 4.4 billion pounds ($6 billion) a week would, unless adjusted, deliver more than the target for 150 billion pounds of stimulus this year.

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What Bloomberg Economics Says:

“The year started with speculation rife that the BOE could take the historic step of reducing rates below zero. While the central bank looks like it will formally adopt negative rates as a tool in 3Q, a rapid rollout of the vaccine and a fiscal boost in the budget have greatly reduced the chances of them being used. We expect the BOE to stay on hold for the remainder of the year, emphasizing its higher-than-usual bar for tightening policy.”

–Dan Hanson

Bank of Canada

Current overnight lending rate: 0.25%Bloomberg Economics forecast for end of 2021: 0.25%

The Bank of Canada is signaling it will be one of the first Group of Seven central banks to start paring back monetary policy support as the nation’s economic recovery from the Covid-19 crisis accelerates.

Analysts anticipate next steps to pare bond purchases will come as early as a policy decision on April 21, while a so-called taper in the U.S. isn’t expected until next year.

Canada’s central bank has been buying a minimum of C$4 billion ($3.2 billion) in government bonds each week, accumulating more than C$250 billion of the securities over the past year. That pace is likely no longer warranted with an outlook that appears to improving dramatically by the week, helped by a recovery in commodity prices and a robust housing market.

The central bank, however, has sought to ease any worries of an imminent change to its benchmark overnight rate — currently at 0.25%. Officials have pledged to keep it there until economic slack has been fully absorbed — expected well after the quantitative easing program ends.

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What Bloomberg Economics Says:

“A positive reassessment of the growth outlook will drive only a limited shift in BoC communications in April. The labor market is still a long way from full recovery, a factor that will increasingly dominate thinking about the inflation mandate. In turn, a near-term pickup in prices will be treated as transitory. Nonetheless, an announcement to reduce QE purchases at the April meeting would be consistent with prior communications, even if a rate hike is still more likely to be an early-2023 event, in our view.”

–Andrew Husby

Bank of Canada Dashboard

BRICS CENTRAL BANKS

People’s Bank of China

Current 1-year best lending rate: 3.85%Bloomberg Economics forecast for end of 2021: 3.85%

The PBOC cut lending rates and deployed various quantitative tools to inject liquidity into the pandemic-hit economy last year, on top of asking banks to increase loans. That helped to shore up growth but also pushed debt levels to a record high, fueling concerns of property bubbles and financial risks. With the economy’s recovery now well on track, the central bank is seeking to rein in its stimulus without derailing that rebound.

The PBOC is likely to normalize policy by moderating credit expansion rather than hiking rates, economists say. Officials have said they want to match the growth in money supply and credit with the expansion in nominal GDP this year, and stabilize the debt-to-GDP ratio. The PBOC recently asked banks to curtail loan growth for the rest of 2021 to keep new advances at roughly the same level as last year.

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What Bloomberg Economics Says:

“Robust growth, yet with pockets of weakness, suggest little need to the central bank to move the rate either way in 2021. In the meantime, the central bank will continue to tamp down on credit growth in a gradual taper to head off financial risks. It’s also likely to keep up targeted support for small private companies — an area of persistent weakness in the recovery.”

–Chang Shu and David Qu

Reserve Bank of India

Current RBI repurchase rate: 4%Bloomberg Economics forecast for end of 2021: 4%

India’s central bank formally embarked on the path of QE in early April, pledging to buy an assured amount of sovereign bonds this quarter as it fights to keep borrowing costs low and support a recovery in Asia’s third-largest economy. While the RBI already had been buying government securities in the secondary market, April’s meeting marked the first time the central bank committed upfront to buy a specified amount.

Hamstrung by underlying price pressures that could gather pace in coming months, Governor Shaktikanta Das and five other members of the monetary policy committee voted to keep the repo rate unchanged at 4%. However, Das pledged to maintain a dovish stance if economic conditions deteriorate as a number of provinces including Maharashtra, home to the financial capital of Mumbai, grapple with lockdowns amid a fresh wave of Covid-19 cases.

What Bloomberg Economics Says:

“The RBI is likely to look through above-target inflation in the near term, with its primary focus on securing a durable recovery in growth. We see it holding the repo rate at 4% through the fiscal year ending March 2022. Sovereign bond purchases in its new QE program will be its main easing tool in the quarters ahead and should help tamp down longer-term yields to keep borrowing costs low to support the economy.”

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–Abhishek Gupta

Central Bank of Brazil

Current Selic target rate: 2.75%Bloomberg Economics forecast for end of 2021: 5.5%

Brazil’s central bank has begun paring back monetary stimulus as inflation surges despite a new wave of the pandemic that threatens the economic recovery. Policy makers raised the benchmark Selic rate by 75 basis points in March, the most in a decade, and signaled that a second move of the same magnitude is on the way at their next decision in May.Despite the institution’s assurances that price shocks are temporary, futures traders are betting even bigger hikes are in the pipeline. Driven by higher fuel costs, annual inflation blew past the upper limit of the central bank’s target range in March, hitting a four-year high.

What Bloomberg Economics Says:

“Recent actions and communications suggest the BCB will try to right the fiscal wrong with monetary policy. Fiscal uncertainties were an important driver of the currency meltdown in the first quarter; their likely persistence suggests that the real may remain misaligned with Brazil’s robust external fundamentals. In the meantime, the BCB is set to continue to raise the policy rate, fearful of the inflationary impacts of the weaker currency, and regardless of economic slack. The real may close the year at 5.30 per U.S. dollar, and the Selic at 5.5% — still below the neutral rate (estimated to be 6% to 7%).”

–Adriana Dupita

Bank of Russia

Current key rate: 4.5%Bloomberg Economics forecast for end of 2021: 5.5%

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The Bank of Russia surprised markets by starting its rate-hiking cycle earlier than expected. The inflation spike proved to be more prominent than policy makers thought before, Governor Elvira Nabiullina said after the board raised the key rate by 25 basis points in March and signaled more increases. The central bank will start publishing forecasts for the key-rate range starting their next meeting on April 23.

The ruble dropped in value after the U.S. imposed sanctions on Russian sovereign ruble bonds at the primary market. It recovered some of the losses but the risk of additional steps is weighing on the currency. The U.S. has also warned of “consequences” if jailed opposition leader Alexey Navalny dies. These heightened geopolitical tensions are providing another argument for a bigger rate hike this week.

Inflation peaked in March at the level last seen in late 2016, fueled by food prices and the weaker ruble. President Vladimir Putin made the cost of living a political issue when he told the government in December to put caps on prices of certain goods. Since then, Russia increased export duty on grain and negotiated with producers to set limits on some food staples. All administrative steps to curb prices are distorting the market signals and Russia needs to move away from that, Nabiullina said recently.

What Bloomberg Economics Says:

“Spiking inflation and a swift rebound in demand caught the Bank of Russia by surprise. Higher yields and fresh sanctions are layering on risk. Policy makers have turned hawkish, signaling significant tightening in 2021. We expect a steady pace of quarter-point hikes in the near term, which will give the central bank some room to maneuver in the second half of the year.”

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–Scott Johnson

South African Reserve Bank

Current repo average rate: 3.5%Bloomberg Economics forecast for end of 2021: 3.5%

The South African central bank’s next move will be to tighten as it projects inflation will tick up to around the 4.5% mid-point of its target range. Still, the timing of the first hike is uncertain.

The implied policy rate path of the MPC’s quarterly projection model in March indicated two increases of 25 basis points in the second and fourth quarters of 2021. Last week, Governor Lesetja Kganyago said the central bank is in no rush to take the benchmark back to where it was before the pandemic and that it would likely maintain an accommodative monetary policy stance to support the economy as long as the inflation outlook gives it room to do so.

Forward-rate agreements, used to speculate borrowing costs are pricing in only one 25 basis point increase by year-end. Most economists are less hawkish and see the rate remaining at its record low until the end of 2021.

What Bloomberg Economics Says:

“The coronavirus is likely to keep spreading until there’s a significant ramp up in the governments vaccination program. As such, the economy is will remain fragile and highly unpredictable this year. This, together with the benign inflation outlook should keep rates on hold this year.”

–Boingotlo Gasealahwe

MINT CENTRAL BANKS

Banco de Mexico

Current overnight rate: 4%Bloomberg Economics forecast for end of 2021: 4%

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Mexico’s central bank held its benchmark rate at 4% in March, amid an inflation surge that is leading many economists to predict its monetary easing cycle has drawn to a close. Led by rising fuel costs, consumer prices rose 4.67% last month from a year earlier, jumping above the ceiling of the institution’s target.Governor Alejandro Diaz de Leon still didn’t close the door to additional rate cuts, saying that officials will continue taking a data-dependent approach to monetary policy. Consumer prices, he said, have been pressured by supply shocks, a weaker peso, and a shift in demand for goods instead of services, but the Mexican economy is likely to have a negative output gap “for some time.”

Banxico, as the bank is known, expects annual inflation to peak during the second quarter, before slowing toward the end of the year.

What Bloomberg Economics Says:

“We expect Banxico to hold its benchmark rate at 4% in 2021. The rate remains high relative to peers and previous economic downturns, but resilient high inflation due to lingering shocks offset disinflationary pressure from ample economic slack and limit room for more accommodation.”

–Felipe Hernandez

Bank Indonesia

Current 7-day reverse repo rate: 3.5%Bloomberg Economics forecast for end of 2021: 3.75%

Rising global bond yields have all but shut Bank Indonesia’s window for further easing this year. Governor Perry Warjiyo is turning his attention to preserving the country’s interest-rate differential from the U.S. to stem foreign outflows and protect the battered rupiah, which he considers “very undervalued.” Targeted macroprudential measures, such as the recent relaxation of home and auto loan rules, will likely be Warjiyo’s main lever to revive bank lending and aid growth.

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The central bank insists it won’t unwind monetary support for the economy anytime soon, with demand and inflation still weak. The institution also has signaled that when it is time to tighten, it could focus on restricting liquidity before raising rates.

That will be one less thing for investors to worry about as they keep an eye on growing political pressure for BI to work more closely with the government. President Joko Widodo has called for the central bank’s mandate to be expanded to include employment and economic growth, even as he pledged to respect BI’s autonomy.

What Bloomberg Economics Says:

“Bank Indonesia appears limited in its ability to cut rates further this year, even though still-sluggish domestic demand is likely to justify more easing. Instead, heavy capital outflows — linked to U.S. reflation and concerns about new constraints put on BI’s independence — may require rate hikes to support the rupiah, instead of more concerted FX intervention that depletes reserves. Other measures would likely be deployed to counter the drag on domestic demand.”

–Tamara Henderson

Central Bank of Turkey

Current 1-week repo rate: 19%Forecast for end of 2021: 16%

Installed after President Recep Tayyip Erdogan abruptly fired his market-friendly predecessor following a bigger-than-expected rate increase, new Governor Sahap Kavcioglu is under pressure to reduce borrowing costs to boost growth.

Turkey’s central bank left its benchmark rate unchanged in Kavcioglu’s first monetary policy meeting. While the decision matched market expectations, the institution omitted an earlier pledge to keep monetary policy tight and even deliver additional hikes if needed. Although Kavcigolu has said he would not rush to loosen the stance he inherited, the changes in the rates statement prompted further speculation that cuts might be imminent.

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Meantime, Erdogan, who holds the unorthodox view that high rates cause inflation, continues to express his determination to both reduce price growth and reduce borrowing costs to single digits.

What Bloomberg Economics Says:

“The recent firing of the central bank governor sends a clear message about the direction of policy: growth at all costs will be pursued. But rising U.S. yields, higher oil prices and lira depreciation will prevent rate cuts in the short term. If global conditions warrant tightening, it’ll be delivered through the backdoor.”

–Ziad Daoud

Central Bank of Nigeria

Current central bank rate: 11.5%Bloomberg Economics forecast for end of 2021: 13%

The Nigerian central bank is inching closer to hiking its benchmark rate for the first time since July 2016. In March, three of nine MPC members who attended the policy-setting meeting voted to tighten by at least 50 basis points, a shift from January when the panel was unanimous in its decision to hold.

Governor Godwin Emefiele said at the time the central bank can only effectively shift to taming inflation that’s at a four-year high once the recovery of Africa’s largest economy from last year’s recession has reached a comfortable level. Since then the International Monetary Fund has increased its projection for the country’s 2021 output growth to 2.5% from 1.5%. That would be the fastest expansion since 2015.

A rebound in oil prices could improve the prospects for growth further, giving the central bank room to focus on taming inflation, even if it’s only from the second half of the year. Higher rates will also help support the naira, which was devalued twice in 2020.

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What Bloomberg Economics Says:

“Nigeria’s inflation rate continues to surge, and has been stuck above the central bank target range for the past five years. However, the Central Bank of Nigeria has overlooked the recent uptick, choosing instead to support the economy with a 200 basis point rate cut. We expect it to hike rates again this year, when the recovery has gathered pace and the policy focus shifts back to inflation.”

–Boingotlo Gasealahwe

OTHER G-20 CENTRAL BANKS

Bank of Korea

Current base rate: 0.5%Bloomberg Economics forecast for end of 2021: 0.5%

The Bank of Korea is expected to maintain a long hold as its optimism over the economy is tempered by continued uncertainty over the outlook and a slow vaccine rollout. The central bank sees faster-than-previously expected growth in the mid-3% range as exports surge on global tech demand and recoveries in China and the U.S. But Governor Lee Ju-yeol has played down talk that a tightening of policy is anywhere near the horizon.

Keeping the BOK cautious is a renewed uptick in domestic virus cases. The resurgence is pushing the government to consider ramping up public restrictions on activity. A shortage of vaccines is also making it increasingly unlikely that the country will achieve its goal of herd immunity by year-end. If things take a turn for the worse, the central bank doesn’t have much room to go the other way and reduce its benchmark rate further after 75 basis points of cuts last year. Rising household debt poses a risk to the country’s financial stability and Lee has said the rate is already near its lower bound.

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For the time being, standing pat appears the institution’s best option for safeguarding the recovery while ensuring financial imbalances don’t accumulate further. The majority of economists surveyed by Bloomberg see the BOK holding its policy rate at the current level until the third quarter of next year.

What Bloomberg Economics Says:

“The Bank of Korea has likely reached the end of its easing cycle. While uncertainties surrounding the pandemic remain high, South Korea’s economy is poised to rebound in 2021 and the central bank remains concerned about growing financial risks. The BOK has cautioned that the government’s large borrowing plans could lead to bond market imbalances, but it will continue using ad-hoc bond purchases to contain yields rather than shift to QE.”

–Justin Jimenez

Reserve Bank of Australia

Current cash rate target: 0.1%Bloomberg Economics forecast for end of 2021: 0.1%

With the RBA targeting unemployment in the low 4% range and pledging rates won’t rise until inflation has sustainably returned to the 2-3% target, monetary stimulus will be in play for some time.

The central bank has reinforced the economy’s rapid recovery by holding down borrowing costs through a firm defense of three-year debt — its variant of yield curve control. That has also helped weaken the currency a touch in combination with QE that targets 5-10 year securities outside the YCC framework.

Key decisions over whether to roll over the yield target to the November 2024 maturity, and whether to extend QE when the current round expires in September/October will likely be influenced by the economy’s resilience to a withdrawal of government stimulus.

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While the RBA has also said it will “carefully” monitor surging home prices, any action to stem gains is likely to come from tighter bank lending rules, not monetary tightening.

The RBA has learned from its experience in 2009, when it led the world in raising rates. This time round it will wait for other major economies to move first to avoid renewed currency strength choking off the expansion.

What Bloomberg Economics Says:

“Last year was a consequential one for the RBA — it ventured into yield curve control and QE. This year it will be less active, focused more on fine tuning. A pressing task will be to curb appreciation in the local currency. Another, working with other regulators to reinstate macro prudential policy restraints to restrain a resurgent housing market. Labor market slack is set to damp inflation, and keep the cash rate unchanged, for several years yet.”

–James McIntyre

Central Bank of Argentina

Current rate floor: 38%Bloomberg Economics forecast for end of 2021: 38%

Argentina has relied on a mix of orthodox and unconventional policies to maintain its currency market relatively calm. While largely refraining so far this year from the mass money printing of 2020, policy makers have amplified price controls and slowed a crawling peg depreciation in a bid to cool inflation, currently around 40% a year. In order to absorb liquidity, the central bank has allowed financial institutions to pile into its short-term debt, with the amount of outstanding repo notes rising to over 1.5 trillion pesos ($16.2 billion) from 125 billion pesos a year ago.

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Monetary policy in the medium term remains clouded by the uncertainty surrounding negotiations with the IMF. The government has indicated a deal is unlikely to happen before mid-term elections in October, and Central Bank President Miguel Pesce has stayed on the sidelines of talks. While foreign reserves have slightly rebounded this year, they hover near a four-year low. The government’s strict currency controls, once labeled temporary measures, have no expiration date in sight.

What Bloomberg Economics Says:

“The IMF will probably require Argentina to adjust its policies in exchange for an Extended Fund Facility deal. Until then, however, we expect the BCRA to stay put. The policy rate will likely be on hold at 38% even as inflation accelerates, and the peso will likely depreciate at a pace slightly below inflation. Once a deal is struck — likely after the October mid-term legislative elections — the BCRA will probably bring real rates to positive territory and to reduce the currency misalignment.”

–Adriana Dupita

G-10 CURRENCIES AND EAST EUROPE ECONOMIES

Swiss National Bank

Current Libor target rate: -0.75%Median economist forecast for end of 2021: -0.75%

The SNB’s monetary policy consists of negative rates and currency-market interventions.

In light of the small local bond market, the strategy is the most effective, SNB President Thomas Jordan has said. Data also indicate the intensity of interventions has diminished in recent months, as the franc dropped versus the euro.

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Having slumped the most in decades due to the pandemic, the Swiss economy is due to return to its pre-crisis level in the latter half of this year. Still, inflation also remains weak.

Sveriges Riksbank

Current repo rate: 0%Bloomberg Economics forecast for end of 2021: 0%

Sweden’s central bank remains focused on bond purchases to keep rates low and stabilize markets. Still, Some policy makers are highlighting the option of a rate cut to stimulate demand and restore confidence in the Riksbank’s 2% inflation target.

The central bank kept rates unchanged at its last meeting, and maintained its QE program at 700 billion kronor ($82 billion). Policy makers agreed that it was too soon to discuss withdrawing monetary support despite signs of economic stabilization and an uptick in consumer prices.

Governor Stefan Ingves has signaled he prefers QE to rate cuts, and said last month he sees no risk of above-target inflation “in the foreseeable future.” Meanwhile, the property market soaring to record price levels is an increasing worry for Ingves, who said Sweden’s high level of household debt “will become problematic sooner or later.”

What Bloomberg Economics Says:

“A rebound in global trade is benefiting export-oriented Sweden and the economy has recouped more of the pandemic loss than expected by Riksbank. Short-term risks from new virus measures and a weak outlook for inflation due to modest wage growth still means policy makers won’t be in any hurry to withdraw support. The Riksbank has extended its bond-buying scheme until end-2021. We expect Ingves to stay on hold as the recovery takes shape.”

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–Johanna Jeansson

Norges Bank

Current deposit rate: 0%Bloomberg Economics forecast for end of 2021: 0.25%

Norway’s central bank is expected to be the first among wealthy western nations to tighten policy after its economy took a smaller hit than most in 2020. Its March forecast implies that the likelihood of a rate increase is split 50/50 between September and December.

While soaring house prices signal financial imbalances are building up, Governor Oystein Olsen has said substantial uncertainty still remains regarding the recovery.

Norway’s economic resilience has been boosted in part by an effective lockdown strategy and billions of dollars in government support backed by the country’s $1.3 trillion sovereign wealth fund. Still, restrictions to fight the spread of the more contagious strains of Covid-19 this year have hampered the recovery, with a deeper contraction in the first two months than the central bank had forecast.

What Bloomberg Economics Says:

“A quick rebound from the pandemic slump, sharply rising house prices and above target inflation during the past year give the central bank reason to think about leaving zero rates behind. But not yet. We expect extended virus restrictions to weigh on domestic demand until late in the second quarter. Norges Bank will likely wait until 4Q before lifting off.”

–Johanna Jeansson

Reserve Bank of New Zealand

Current cash rate: 0.25%Bloomberg Economics forecast for end of 2021: 0.25%

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New Zealand’s red-hot housing market has been driving the outlook for monetary policy this year after the government changed the RBNZ’s remit, forcing it to take house prices into account. After an initial flurry of bets that the central bank could start raising rates in 2022, the emerging consensus is that the cash rate will stay at its record low for longer. That’s partly because a raft of new government measures to cool the property market have taken the pressure off the RBNZ to act.

While New Zealand’s successful handling of the pandemic initially enabled its economy to stage a V-shaped recovery, it now faces the possibility of a double-dip recession as its closed border hurts its tourism sector. The opening of a long-awaited travel bubble with Australia in April may help alleviate the pain, but support for the economy is still needed to ensure the recovery stays on track this time. Governor Adrian Orr has also made clear he wants to see a sustained inflation pickup before he considers removing stimulus.

What Bloomberg Economics Says:

“The RBNZ looks set to keep rates on hold this year. It’s likely to use other tools — the Funding for Lending program and asset purchases — if needed to add more support or to sustain maximum downward pressure on the currency. Its immediate attention is likely to remain on surging house prices, which have elevated financial stability risks. It’s already taken macro prudential policy steps, alongside government measures to rein in investor demand. The risks lie with further macro prudential tightening over 2021.”

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–James McIntyre

National Bank of Poland

Current cash rate: 0.1%Median economist forecast for end of 2021: 0.1%

Poland’s central bank intends to keep its benchmark rate at a record low until at least early next year, when the term of the Monetary Policy Council ends.

The economy shrank for the first time in nearly three decades in 2020, and offficials responded by introducing a QE program and reducing the key rate from 1.5% in three steps between March and May.

The EU’s biggest eastern economy is set to rebound this year, though the outlook has recently become more uncertain on the third wave of the pandemic.

Even as neighboring central banks in the Czech Republic and Hungary are seen taking a less accommodative approach, their policies “play no role whatsoever” in monetary policy in Poland, according to Governor Adam Glapinski.

Czech National Bank

Current cash rate: 0.25%Median economist forecast for end of 2021: 0.5%

The Czech central bank has been telegraphing monetary tightening for over half a year but the prolonged coronavirus crisis is set to delay the first rate increase until the third quarter.

Government programs to protect jobs are driving wages up and deferred consumption is set to fuel inflation once shops and services reopen after one of the world’s deadliest Covid-19 outbreaks. Still, policy makers agreed in March that a “longer-lasting pandemic-induced downturn” will probably mean a slower pace of monetary tightening than outlined in the institution’s forecast, which assumed three rate hikes for this year.

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Singapore Closes Schools; Amazon Aids India: Virus Update

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Author of the article: Bloomberg News Bloomberg News Bloomberg News (Bloomberg) — Any mandates in the U.S. to require people to be vaccinated against Covid-19 will be set at the local level by companies and institutions such as colleges, the head of the Centers for Disease Control and Prevention said. The U.S.’s rolling one-week average…

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(Bloomberg) —

Any mandates in the U.S. to require people to be vaccinated against Covid-19 will be set at the local level by companies and institutions such as colleges, the head of the Centers for Disease Control and Prevention said. The U.S.’s rolling one-week average of new virus cases fell to the lowest level since June.

Singapore plans to close public schools this week and move to home-based learning, as a spike in unlinked cases poses the biggest challenge since last year in the city’s efforts to tackle the pandemic.

Amazon.com Inc. and one of India’s largest renewable energy companies are boosting supplies of oxygen concentrators to the country in desperate need of the life-saving medical equipment as a brutal second wave sweeps through its towns and cities.

Key Developments:

Global Tracker: Cases pass 162.6 million; deaths exceed 3.37 millionVaccine Tracker: More than 1.43 billion doses have been givenSmall town reporters reveal coronavirus carnage in IndiaCDC’s big mask change went from science to secret to surpriseThere’s no hidden U.S. vaccine stockpile ready to send abroadAsia’s Covid success stories, Taiwan and Singapore, face threats

Subscribe to a daily update on the virus from Bloomberg’s Prognosis team here. Click CVID on the terminal for global data on cases and deaths.

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Italy Daily Deaths Drop (12:46 p.m. NY)

Italy recorded 93 coronavirus deaths on Sunday, the lowest count since late October. New infections were 5,753, close to the seven-month low registered last week. Italy has been accelerating its vaccination campaign to over 500,000 shots per day, and infections have continued falling even with the loosening of restrictions on the economy and social life.

CDC Shuns Federal Vaccine Mandate (12:25 p.m. NY)

Any mandates in the U.S. to require people to be vaccinated against Covid-19 will be set at the local level by companies and institutions such as colleges, the head of the Centers for Disease Control and Prevention said.

“It may very well be that local businesses, local jurisdictions, will work towards vaccine mandates,” CDC Director Rochelle Walensky said on NBC’s “Meet the Press.” “That is going to be locally driven and not federally driven.”

Separately, on “Fox News Sunday,” Walensky cited colleges or universities that may enforce vaccine mandates for students, and that the cruise ship industry may also consider it for people about to embark on multiday journeys at sea.

Walensky spoke days after the CDC announced that Americans vaccinated against Covid-19 were clear to shed their face masks in public at most times.

20 Million Fully Vaccinated in U.K. (12:16 p.m. NY)

More than 20 million people, or 38% of the British adult population, are fully vaccinated against the coronavirus, the government said Sunday. Over 36.5 million, or 69%, have had one dose. The U.K. will open inoculations to everyone 35 and older this week as it combats cases of a highly transmissible variant that originated in India. The country reported another 1,926 cases and four deaths on Sunday. Both figures are up about 9% over the last seven days.

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Hong Kong Tightens Travel Rules (10:55 a.m. NY)

Hong Kong will increase restrictions on arrivals from Taiwan and Singapore, the South China Morning Post reports.

Taiwan, Singapore and Japan are to be classified high risk according to the city’s vaccine bubble travel arrangements. Unvaccinated travelers arriving from those places will have to quarantine at designated hotels for 21 days as well as present proof of a negative test.

Singapore Shuts Schools (7:59 a.m. NY)

All primary, secondary, junior college and Millennia Institute students will shift to full home-based learning from May 19 till the end of the school term on May 28, Singapore’s Ministry of Education said on Sunday. Preschools and student care centers remain open to support parents who have to work.

New Attack Hits Irish Health System (8:07 a.m. NY)

Ireland’s Department of Health has been hit by a cyber attack similar to the ransomware one carried out last week on the country’s Health Service Executive, RTE News said on Sunday.

Covid-19 vaccination appointments and testing are underway, but there may be some delays in getting results back, the HSE said. Contact tracing is also operating, though it may take longer than usual, it said.

Ireland hasn’t published national coronavirus infection case numbers since Thursday.

U.S. Cases Now Fewest Since June (7:55 a.m. NY)

The U.S. added slightly more than 30,000 cases on Saturday, sending the nation’s rolling one-week average to the lowest level since late last June, according to data compiled by Johns Hopkins University and Bloomberg.

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Even so, another 480 people died of illness related to Covid-19. That compares with peaks of more than 5,000 deaths a day in January and February.

Amazon Sends More Oxygen to India (7:33 a.m. NY)

Amazon.com Inc. and Indian renewable energy company Greenko Group are boosting supplies of oxygen concentrators to the country.

The U.S. company is working with “sellers on its marketplace to help them bring in about 9,000 oxygen concentrators for customers in India,” it wrote in a blog on Saturday. The first batch of 1,000 oxygen concentrators have landed and are available for purchase while the rest are expected in the second half of May, it said.

Hyderabad-based Greenko said on Sunday that it had airlifted the first batch of 1,000 large medical-grade concentrators.

Turkey Eases Curbs (6:51 a.m. NY)

Turkey will ease its virus restrictions from Monday as new cases of Covid-19 decline following a three-week lockdown, offering a glimmer of hope for the summer tourist season.

Infections plummeted to 11,472 on Saturday from a record high of 63,082 a month ago, though that’s still above the target of no more than 5,000 cases set by President Recep Tayyip Erdogan when he announced the national lockdown from April 29.

Most travel restrictions will be lifted but nighttime and weekend curfews will remain in place, and restaurants will only open for food deliveries, according to an Interior Ministry decree on Sunday.

German Infection Rate Continues to Fall (6 a.m. NY)

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Germany’s contagion rate fell further below a key level, a trend that could trigger a loosening of some pandemic restrictions.

Infections dropped to 83.1 per 100,000 people over the past seven days, according to the RKI public-health institute. The incidence rate dipped under 100 on Friday and regional governments can start to lift restrictions if it remains below that level for five consecutive working days.

“This is a hopeful sign but we still need to be careful,” Health Minister Jens Spahn said in a tweet.

Taiwan Local Cases Hit Record (5:38 p.m. HK)

Taiwan registered a record 206 new local cases on Sunday, after adding 180 infections the previous day. The country is racing to contain its worst outbreak of the coronavirus, while averting a full lockdown.

Italy Vaccination Cuts Infections (5 p.m. HK)

Covid-19 vaccines are highly effective even after the first dose, according to a large-scale study by Italy’s national health institute. Infections, hospitalizations and deaths all declined significantly about 14 days after the first shot. After 35 days, infections were 80% lower than among those who hadn’t received any dose, while hospitalizations were 90% lower and deaths 95% lower.

More than 7 million Italians who had received at least one vaccine dose between Dec. 27 and April 4 were surveyed. Two-thirds were given the BioNTech-Pfizer vaccine, while 29% received AstraZeneca Plc’s shot.

EU Travel Pass May Arrive Soon (4:50 p.m. HK)

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A health travel pass in the EU will be available from around June 20, French junior minister for European Affairs Clement Beaune said in an interview Sunday on Europe 1 radio interview. The pass will show either proof of vaccination against Covid-19, immunity due to past infection or the result of a negative PCR test.

Beaune says he’s pushing for quarantine measures to be lifted once the pass is operational. Only vaccines approved by the European Medicine Agency will be accepted as proof of vaccination. That would exclude Russian and Chinese vaccines, he said.

France will implement its own health pass from June 9 for major gatherings of more than 1,000 such as festivals and concerts, Beaune said.

Cyclone Heads to India (3:15 p.m. HK)

A cyclone is set to hit the western coast of India — the country’s industrialized belt with big refineries and ports — prompting authorities already grappling with a deadly second virus wave to start preparations for evacuating citizens.

Cyclone “Tauktae,” currently about 500 kilometers (310 miles) from the financial hub of Mumbai, is expected to make landfall Tuesday morning in the southern districts of Gujarat, with wind speeds touching 175 kilometers per hour, according to the India Meteorological Department. It has intensified into a “very severe cyclonic storm,” the national weather forecaster said in a tweet Sunday.

Local authorities in Mumbai have already moved hundreds of Covid-19 patients to other facilities. Prime Minister Narendra Modi told senior government officials to ensure “maintenance of all essential services such as power, telecommunications, health and drinking water,” according to a May 15 statement from Press Information Bureau.

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India Virus Cases Ease (1:50 p.m. HK)

India reported 311,170 new infections Sunday, continuing the downward trajectory seen in the past few days, bolstering hopes that cases may have peaked after a deadly second wave that overwhelmed hospitals and crematoriums. The case tally has crossed 24.6 million, according to the India’s health ministry. More than 182 million vaccine doses have been administered.

While the daily surge in cases is ebbing, there’s no let up in deaths with the Asian nation reporting 4,077 more casualties, pushing the total to 270,284. Those death toll numbers might be understated, according to local media reports of bodies floating along river banks in the northern states.

The Dainik Bhaskar, a Hindi newspaper popular across India’s crowded heartland, fanned 30 of its reporters along the banks of the river Ganga in Uttar Pradesh state. They found — and photographed — more than 2,000 corpses across some 1,140 kilometers (708 miles). The state government claims only about 300 are dying daily.

Their findings make grim reading: authorities are piling silt over more than 350 bodies lying in shallow graves in Kannauj, the reporters say; they see dogs gnawing at some of the 400 corpses just a short distance from a crematorium in Kanpur; they count 52 corpses floating down the river in Ghazipur, often crossing state borders.

Singapore to Vaccinate Children (11:30 a.m. HK)

Singapore plans to vaccinate under 16 year-olds after a recent rise of Covid-19 infections among students in the island state, according to Education Minister Chan Chun Sing.

The ministries of education and health are working out plans for the “vaccination of our students,” Chan wrote on his Facebook page. “Once the approval for use is granted, we will roll out vaccinations to those below 16.”

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U.S. Economic Rebound Proves More a Grind Than a Boom

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Author of the article: Bloomberg News Shawn Donnan and Cécile Daurat (Bloomberg) — The prevailing scenario for the U.S. recovery on Wall Street and in Washington has until recently focused on a boom fueled by consumers roaring back to life with a vengeance in a vaccine-induced reopening of the economy. The reality emerging from the…

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(Bloomberg) — The prevailing scenario for the U.S. recovery on Wall Street and in Washington has until recently focused on a boom fueled by consumers roaring back to life with a vengeance in a vaccine-induced reopening of the economy.

The reality emerging from the latest data is a bumpy rebound vulnerable to surprises.

Whatever your take is on whether unemployment benefits in discouraging Americans from returning to work or how worrisome recent price hikes are — not very, says the Federal Reserve — the economy is flashing messy signals.

On Friday, stalling retail sales and rising inflation expectations capped a volatile week after major misses in the April consumer price and job reports.

At the heart of the grind is the labor market: getting about 10 million people back to work after a third of the workforce changed or lost their jobs during the Covid-19 pandemic is going to take time, leaving some employers scrambling to fill positions amid brisk demand.

“This will be a chaotic recovery,” said Wendy Edelberg, former chief economist at the non-partisan Congressional Budget Office who now directs the Hamilton Project at the Brookings Institution.

Layered onto the data has been a cyberattack that caused gasoline shortages on the East Coast and prompted Republicans to invoke memories of the 1970s energy crisis.

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Added to supply chain bottlenecks that have been a drag on automakers and other manufacturers, the hack has provided evidence of how vulnerable the U.S. recovery remains to unanticipated shocks. And President Joe Biden’s ambitious plans to create millions of good-paying jobs as part of a $4 trillion package face massive barriers at both the federal and state level before they can materialize.

There is no doubt the U.S. economy is rebounding. But the K-shaped bounce predicted by many is turning into a multi-headed monster.

Dog Walker

In Ann Arbor, Michigan, you can see it in the business of dog-walker Christina Lirones.

Before the pandemic, she walked eight to ten dogs a day at $20 a walk and often spent weekends house-sitting for pet owners. Wednesday “was a stellar day for post-pandemic and I walked three dogs,” she said in an interview.The worst is behind her. But demand is still slow. Plus Lirones, 60, has a daunting mountain of credit-card debt she built up during the pandemic by taking up zero-interest credit card offers rather than applying for unemployment benefits.

Lirones has a spreadsheet and a plan to pay off her cards before she has to start paying interest. While stimulus checks she and her husband have received this year went mostly to doing exactly that, she still has a ways to go.

“Tens of thousands is 100% correct,” she texted on Friday. “Yikes. I try not to think about it.”

Economist Edelberg, like many of her peers, remains an optimist about what lies ahead. She expects amassed household savings and pent-up demand to be unleashed in the coming months as the pandemic is brought under control in the U.S. The strongest sign yet of a return to everyday life came Thursday when the Centers for Disease Control and Prevention said vaccinated people can drop masks in most situations.

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With the anticipated surge in demand for services such as travel, though, will come yet more mismatches with supply. They will lead to price spikes like the 10% surge in a month in used-car prices — the largest recorded since 1953 — reflected in Wednesday’s consumer price data.

“I fully expect airline prices to go through the roof,” Edelberg said.

Layoffs

Other data indicators point to the patchiness of the recovery.

The surge in job openings to a record high of 8.1 million in March underscored the fast-paced reopening of many businesses in the country but masked job reductions that have continued elsewhere.

In Burlington, Wisconsin, Swiss food giant Nestle SA on Wednesday notified authorities that it would be laying off almost three dozen workers at a factory that has for years made the chocolate “morsels” that many home bakers rely on. A spokeswoman for the company said Friday the cuts were related to the 2018 sale of its U.S. confectionary business to Italy’s Ferrero-SpA/Alba.

In the past two weeks in Ohio, officials have received notices of layoffs from Sunbeam Products and engineering company OPW Engineered Systems.”It is expected that this closure will be permanent,” an OPW official wrote in his letter to state officials announcing 103 job cuts due to take place over the summer.Meanwhile, small businesses, which employed almost half the private workforce before the pandemic, have been rebounding more slowly than bigger counterparts.

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By many accounts, business is on fire for some restaurants, hotels and hair salons, especially in the South, which reopened early. But an April survey by the National Federation of Independent Business also found a deterioration in the outlook for business conditions, partly because companies are struggling to find workers.

And data from Opportunity Insights, a research group based at Harvard University, show that total revenue at small firms is down about 29% compared with pre-pandemic January 2020 as of May 5.

Unemployment Benefits

Even the ideological battle over jobs and unemployment benefits is becoming more complicated. Several Republican-run states have announced that they will be pulling out of federal programs in the coming weeks.Such a move, officials in those states said, will spur a new wave of people into the workforce. It will also cut the fiscal stimulus going into the economy in those states. According to the Labor Department, more than 12 million people nationally were receiving those federal benefits in April — and these people are consumers.

The dearth of workers in certain sectors and pockets of the country has led corporate giants such as Amazon.com Inc to announce increases in wages. At the same time, small businesses are trying to make sure the debate over a federal minimum wage doesn’t come back on the agenda, and many are offering one-time cash incentives to lure workers.

Economists may have underestimated how a pandemic that upended personal lives and brought trillions of dollars in relief aid into the economy caused many people to recalibrate.

Dog walker Lirones, who lives with her husband and adult daughter outside of Ann Arbor on a 40-acre farm they bought in the 1990s, said she has come to think that having less work than she used to might fit with her desire to slow things down.

“It may be back to roughly what I want to do,” she said.

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No Pipeline, No Problem as Energy Leads the Stock Market Higher

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Author of the article: Bloomberg News Michael Bellusci (Bloomberg) — It’s going to take more than a pesky pipeline shutdown to knock energy stocks off their pedestal as this year’s best performing group in the S&P 500. Indeed, while the market focuses on popular meme stocks, alternative energy plays, tech and Tesla, the best place…

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(Bloomberg) — It’s going to take more than a pesky pipeline shutdown to knock energy stocks off their pedestal as this year’s best performing group in the S&P 500. Indeed, while the market focuses on popular meme stocks, alternative energy plays, tech and Tesla, the best place to make money in 2021 has been that old warhorse, the crude patch.

Oil & gas shares are up 40% this year compared with a 11% gain in the broad equities benchmark. Despite headwinds from regulatory concerns and the popularity of ESG investing, the group has continued to surge higher on rising oil prices, improving earnings and a market-wide rotation into value stocks. The mantra of limited capital spending and low growth appears to be working. Even the hacking of the largest fuel pipeline in the U.S. last week couldn’t halt the gains.

Macro dynamics are favorable, and share prices remain wildly undervalued as the broader investment community continues to ignore the space, according to New York-based Goehring & Rozencwajg Associates LLC. That probably won’t last with these returns, considering Marathon Oil Corp. is up a whopping 77% this year, while Devon Energy Corp,. EOG Resources Inc. and Diamondback Energy Inc. have all soared more than 60% since the start of 2021. But so far, investors appear to be staying away.

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“To date, we have not seen any material flow of funds from generalist investors” or institutional money, says managing partner Adam Rozencwajg. “The move will be violent when it happens.”

Shrinking Presence

Part of this may come down to simple index weightings, where energy has become just a tiny slice of the stock market. The group accounts for less than 3% of the S&P 500 after being in the double digits 10 years ago.

Energy bulls got a little encouragement in February when Warren Buffett’s Berkshire Hathaway Inc. disclosed a stake in Chevron Corp., according to Bank of Montreal capital markets. Berkshire’s ownership stole headlines, though BMO’s scan of 13F filings also showed broad-based increases in active long-only ownership across E&P stocks after steady declines in recent years, analyst Phillip Jungwirth told clients in a February note.

Shale drillers also offer hope about the macro environment, as they’re generating cash and giving back to investors without increasing supply. EOG Resources Inc. reiterated a no-growth outlook for this year at Citi’s global energy conference earlier this week, according to the bank. The company also declared a surprise special dividend after generating record cash in the first quarter.

See more: Exxon, Chevron Preach Prudence Even as Cash Waterfall Returns

Earnings Encouragement

Meanwhile, first-quarter earnings from 40 U.S. shale drillers were generally positive, according to KeyBanc Capital Markets. Almost 80% of the group beat cash flow per share/Ebitda estimates, analyst Leo Mariani wrote in a note to clients.

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The cyberattack on Colonial Pipeline Co.’s fuel distribution line along the U.S. Eastern Seaboard didn’t do much damage to refining stocks, as a prolonged shutdown was avoided. The approaching summer driving season and the lifting Covid-19 restrictions are keeping analysts bullish.

“What we’re calling the ‘summer of YOLO’ should drive a large-scale recovery in gasoline/jet demand this summer as the U.S. (and hopefully the world) returns to normal,” according to Raymond James. “This narrative will be very hard to fight,” analyst Justin Jenkins wrote in a note to clients.

One cause for concern is inflation. While oil’s generally thought to benefit from rising prices, in this case it raises the specter of a less accommodative U.S. Federal Reserve, which could hurt crude. That, however, isn’t bothering Leigh Goehring. “Inflation is a massive, massive positive tailwind” for oil & gas companies, which are “asset-heavy,” he said.

While rising oil prices have fueled the early stages of an earnings recovery for energy firms, the longer-term outlook is murkier, BMO’s chief investment strategist Brian Belski said earlier this week as he upgraded the sector to market weight from underweight.

“Secular supply and demand dynamics for oil will likely make it difficult for the energy sector to sustain any type of outperformance over the longer-term,” he concluded.

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