Written Commentary
- Central banks continue to dominate on light day for data; German PPI to digest ahead of final Eurozone CPI, Canada CPI and US Philly Fed Services; Riksbank cuts rate as expected, Poland and Turkey rate decisions, smattering of central bank speakers and corporate earnings
- Canada CPI seen rebounding m/m, but falling y/y on headline and core, reinforcing BoC’s dovish stance; upside surprise could spark sharper CAD moves given huge short position
- Turkey: continued hawkish messaging to accompany rate hold, likely to bolster measures to mop up excess domestic liquidity
- Poland: stronger than expected Q2 GDP, uptick in core CPI set to underline no prospect of rate cuts before H1 2025
- Chart: CAD IMM non-commercial net positioning
EVENTS PREVIEW
As with much of the week, today is about central banks rather than statistics, the latter comprising little more than digesting German PPI (the RBA minutes and steady China LPR fixings) ahead of final Eurozone CPI, Taiwan Export Orders, Canadian CPI and US Philly Fed Services. Sweden’s Riksbank is widely expected to cut rates a further 25 bps to 3.50%, while rates are seen on hold in Poland (5.75%) and Turkey (50.0%), and speakers include SNB’s Jordan and Fed’s Bostic. China and the US top the corporate earnings run via way of Kingosft, Kuaishou Technology, Xpeng, Coty, Lowe’s and Toll Bros. Govt bond supply takes the form of Japan 20-yr and German 9 & 26-yr. Turkey’s TCMB will doubtless accompany its expected rate hold with a hawkish message, pointing to still elevated consumer inflation expectations, and the need for CPI to fall significantly further, and perhaps noting that the pick-up in July CPI to 3.2% m/m is a point of concern despite the sharp y/y fall, while also tightening other policy measures, above all raising reserve requirements to soak up the excess supply of Lira, following the success of measures to railroad flows back into the TRY, it might also look at longer-term deposit auctions. As for Poland’s NBP, the stronger than expected Q2 GDP (1.5% q/q 3,2% y/y) only bolsters the case for continuing to hold rates, and signal as many NBP speakers have that a rate cut will not happen before H1 2025, with the uptick in core CPI to 3.8% y/y from 3.6% only reinforcing that view.
** Canada – July CPI **
– CPI has largely surprised on the downside for much of this year, allowing the BoC to cut rates twice, and signal more to come in the face of a weaker economic outlook. July CPI is expected to reinforce that view, with a seasonally typical 0.4% m/m rebound in headline set to bring the y/y rate down to 2.5% from 2.7%, while Median and Trimmed Mean core measures are both forecast to edge down 0.1 ppt to 2.5% and 2.8% y/y respectively. Still it is worth noting that a meaningful upside surprise might trigger some CAD short covering given the outsized IMM non-commercial net short position (see chart).
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