Central Bank Hawks and Oil Showdown

November 23, 2021
  • Fed re-nomination of Powell led to a bear flattening of the Treasury curve
  • Oil prices are lower on escalating supply tug of war
  • German Chancellor Angela Merkel called for tighter mobility restrictions
  • Stronger European and UK data reinvigorates the hawks

Markets are digesting Powell reappointment and stronger data out of Europe. APAC equities were again mixed with Nikkei +0.1%, Hang Seng -1.1%, and Shanghai Comp +0.2%. Equity markets are broadly lower in Europe and U.S. future down 0.3%. In FX, USDJPY rose to a four-year high of 115.15. EUR received a minor bid from stronger PMI figures and hawkish comments by ECB’s Isabel Schnabel on inflation risks. Oil prices are down again, with Brent at $78.50 per barrel amid a battle over who will dominate the supply narrative. Several countries, including the U.S., India, and China, said they would start tapping their strategic reserves to alleviate the recent price pressures. OPEC+ has counterattacked by stating they could respond by reconsidering increasing production quotas, as originally planned. The backwardation of the crude curve is also being quickly removed as prices for shorter contracts fall faster than longer-dated ones.


As we had expected, the Fed nomination decision sent some ripples across financial markets. Markets perceived the outcome as marginally hawkish, and futures now firmed up expectations for a hike in June from having been skewed towards July. We could soon see May coming into play. For now, the Treasury yield curve bear flattened, as we would expect, and real yield became less negative. Governor Brainard was nominated as Vice-Chair, taking over from Clarida early next year. Biden has three more vacancies to fill, but again we don’t expect anything controversial.



German Chancellor Angela Merkel called for tighter mobility restrictions. She characterized the latest wave of infections as the worse the country has experienced, calling the situation “highly dramatic.” Germany is again facing the risk of hospitals becoming overwhelmed during the Covid’s fourth wave. Vaccinations are still below 70%, and while the death rate remains comparatively low, it will probably increase.

On the data front, the euro area’s November PMIs came in on the firmer side, with some signals of inflation pressures. The preliminary reading for the manufacturing component rose to 58.6, the services to 56.6, and the composite to 55.8, all beating expectations. While good news, we have no doubt this optimism will start coming down quickly as the latest wave of infections (and social unrest) takes its toll. IHS Markit’s spokesperson also noted that growing price pressures from supply chain bottlenecks and energy prices, with “upward pressure on prices […] intensified far above anything previously witnessed by the survey.” This puts the ECB in a difficult position, but we still think the balance of risks points to a dovish outlook. Indeed, ECB Executive Board member Schnabel has just characterized inflation risks as being “skewed to the upside.”

Euro area consumer confidence released yesterday contracted to -6.8 for the November advance reading. The decline is considerably greater than the -5.5 expected and a big drop from the previous -4.8 print. In short, the number suggests greater concerns by the region’s consumers in the face of worsening Covid outlook and higher headline inflation. Unfortunately, this outlook is only set to worsen, as seen by stricter lockdown measures and social unrest across many European countries.

UK’s PMI figures also surprised on the upside in November. The preliminary reading for the manufacturing component rose to 58.2, the services to 58.6, and the composite to 57.7. The numbers will support the hawkish case for a near-term hike by the BoE as it confirms that momentum in the UK economy remains strong. The December policy meeting will be a big one.
The Turkish lira remains on the secular downtrend receiving its latest kick from President Erdogan, reaffirming his call for lower rates. This happened in a speech yesterday confirmed the government’s priority is growth and employment, despite extremely high inflation and a weaker currency. The central bank, being subservient to the central government, will surely comply. Markets already expect a 50 bps at least, which we agree with. USD/TRY is up 5% today, rising for 11th consecutive sessions, the longest losing streak in 20 years, according to Bloomberg’s count, crossing the 20 level.


Singapore’s October CPI came in 0.4 ppts higher than expected to 3.2% y/y. The upside surprise was mainly driven by services and food prices. The Ministry of Trade and Industry expects “a steady increase in core inflation in the quarter ahead.” Core inflation rose 1.5% in the month. This reaffirms the MAS’s shift towards an inflation focus in this part of the cycle. While the MAS does not have an explicit inflation target, rising price pressures led the bank to tighten policy last month with a modest steepening of its S$NEER trading band.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction