Written Commentary
- Digesting expected no change from BoJ, sharp slide in Singapore exports; awaiting final Eurozone CPI, US Michigan Sentiment, and ‘triple witching’ in equity markets; busy run of Fed and ECB speakers the likely focal point
- BoJ holds again, but emphasises July forecast update key for policy outlook
- ECB and Fed burnish ‘hawkish’ credentials, but markets continue to defy message
EVENTS PREVIEW
Once the as expected no policy change from the BoJ has been digested (the main take home being that the July BoJ forecast update will be key for future policy), along with a big slide in Singapore Exports. Ahead there are only final Eurozone CPI and provisional US Michigan Sentiment statistically, accompanied by a busy run of ECB and Fed speakers, which will be the focal points for the day, along with ‘triple witching’ in equity markets, and an estimated and rather large $4.2 Trln of options set to expire. The upward revisions to the ECB’s CPI forecasts not only justified yesterday’s rate hike and decision to end APP reinvestment, but also guidance that a July rate hike is ‘very likely’, with Lagarde refusing to discuss terminal rate, and underlining that a rate pause or skip were not discussed. Perhaps most notable were the comments that the 2.2% 2025 CPI forecast ‘is not satisfactory and it’s not timely’, and while unit labour costs were mentioned frequently as an upside risk to inflation, Lagarde was also keen to stress there is not a ‘wage-price spiral’, and that inflation expectations remain close to target, but remain elevated. As with the Fed, the ECB message was emphatically hawkish, while also keen to maintain its room for manoeuvre, both by stressing the tightening of financing conditions, and that the economic outlook remains highly uncertain. While markets are discounting 25 bps rate hikes from the ECB and the Fed in July, they also anticipate that this will be the peak, and see a ‘pivot’ around year end in the US and by Q2 2024 in the Eurozone, i.e. continuing to defy central bank messaging, above all the Fed. Per se, the speeches by the more neutral Fed and ECB speakers today (Barkin, Waller, Rehn and Villeroy) will bear some scrutiny with a further barrage on hand next week. Outside of the UK with the BoE rate decision (25 bps hike to 4.75% expected), CPI and Retail Sales, next week’s data and events schedule will be quite light. There are G7 flash PMIs and other confidence surveys, various US housing indicators, along with Japan’s national CPI and German PPI, and the minutes of the recent RBA and Bank of Canada policy meetings. While both Brazil’s BCB and Bank Indonesia are seen holding rates, and Switzerland’s SNB is expected to hike rates by 25 bps to 1.75%, Turkey’s TCMB is expected to align its official key rate with market rates, as Erkan hosts her first policy meeting, and hike rates by 1,275 bps to 21.25% (though there is a very wide range of forecasts).
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