There is much riding on next week’s ECB meeting, as the EUR is threatening to lastingly drop below parity to the dollar. Political turmoil in Italy adds further pressure on ECB. The Italian President rejected the resignation of PM Draghi and Draghi will try and find sufficient cross party support to keep the government going until the next scheduled election in 2023. The BOJ meeting is also on tap, while economic agenda contains Inflation figures from New Zealand, UK and Canada, and UK labor report and Retail sales.
Have a look at the most important events of the coming days in our usual weekly publication.
Sunday – 17 July 2022
Consumer Price Index (NZD, GMT 22:45) – Q2’S CPI is expected to grow by 1.5% from 1.8% on a quarterly basis, presenting a slowdown in Q2.
Tuesday – 19 July 2022
RBA Minutes (AUD, GMT 01:30 ) – The RBA minutes should provide guidance as to whether the RBA members will move on inflation risks This week’s record low Australian unemployment report, boosted the chances of 75 bp rate hike from the RBA in August. Employment change & ILO rate (GBP, GMT 06:00) – UK Earnings with the bonus-included and ILO unemployment figures are expected unchanged at 6.8% (3 Mo/y) and 3.8% respectively.Building Permits & Housing Starts (USD, GMT 12:30) – Housing starts are expected to rise 3.3% to a 1.600 mln pace in June from 1.549 mln in May. Permits are expected to edge down to 1.690 mln from 1.695 mln in May. Pending home sales grew 0.7% in May after falling -4.0% in April to a 21-month low, leaving a 6th consecutive drop.BoE’s Governor Bailey speech (GBP, GMT 17:45) RBA’s Governor Lowespeech (GBP, GMT 23:10)
Wednesday – 20 July 2022
Consumer Price Index (GBP, GMT 06:00) – Stronger or more persistent inflation clearly is one of those risks, as it could lead to weaker economic growth, a further sharp tightening in global financial conditions, and the “potential for further volatility and stress in financial markets”. UK inflation for June is seen lower at 0.4% m/m but headline is expected at 9.6 % y/y from 9.1% y/y. The BoE remains on course to tighten policy further, although it may not join the half-point club after all, as the economic situation becomes increasingly difficult.Consumer Price Index and Core (CAD, GMT 12:30) – CPI run to 7.7% y/y pace in May, the hottest since 1983, as well as the drop in the June unemployment rate to a record low of 4.90%. The BoC noted that inflation has been higher and more persistent than expected and is likely to run in the 8% area over the next few months. The Bank also noted consumer expectations surveys point to higher inflation for longer. The Bank projects growth of 3.5% this year and 1.75% in 2023. Fears over a wage-price spiral helped motivate the big rate hike.The June CPI is expected at 1.1% m/m from 1.4%m/m and headline at 8.8% y/y from 7.7% y/y.
Thursday – 21 July 2022
Interest Rate Decision, Statement and Conference (JPY, GMT 03:00 & 06:00) – The BOJ is expected to reiterate its resolve to keep monetary policy ultra-accomodative and remain a dovish outlier as many other central banks raise interest rates, a commitment that could lead to further falls in the yen.
Interest Rate Decision, Statement and Press Conference (ECB, GMT 12:15 -12:45) – There is much riding on next week’s ECB meeting, as the EUR is threatening to lastingly drop below parity to the dollar. If the ECB sticks with the modest quarter point lift-off and markets are not happy with what Lagarde has to say on the new anti-fragmentation tool, there is the risk of a sharp break lower. While other central banks have accelerated their tightening cycle, the ECB is still adding support and lagging far behind. Mounting growth risks highlight that the window of opportunity is shorter than thought at the start of the year, and the central bank’s reluctance to scale back stimulus is coming back to haunt Lagarde. With the biggest risk to both growth and inflation stemming from the risk that Russia cuts off gas supplies totally, the ECB’s extremely expansionary monetary policy and the negative deposit rate look very much out of place. A 15-point kick-off from the ECB risks looking like too little too late to keep inflation expectations from running away, even if the central bank flags that September will bring another half-point worth of tightening. Market consensus now is that the ECB will be forced to unveil a potentially unlimited tool cable of addressing the widening of spreads with relatively soft conditions compared to the OMT.
Friday – 22 July 2022
Retail Sales (GBP, GMT 06:00) – UK’s Retail Sales are seen in contraction at -0.3% in June.
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Andria Pichidi
Market Analyst
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