Written Commentary
ECB meeting in focus as Middle East conflict widens; digesting South Korea GDP and Australia labour data, awaiting UK CBI Industrial Trends, Mexico CPI, US weekly jobless claims & KC Fed Manufacturing, Eurozone Consumer Confidence; Turkey & South Africa rate decisions.
- Intel headlines: busier run of corporate earnings.
- Eurozone: ECB set to hold today, but signal likelihood of further tightening, focus on how balance of risks on inflation and growth are pitched.
EVENTS PREVIEW
The ECB policy meeting would normally be considered to be the highlight of the day. But with the conflict in the Middle East widening to the Red Sea and adding threats to energy supply lines, tech earnings starting to roll in as ChatGPT AI goes rogue in an alarming incident during testing, further weather events (massive flooding in South Asia, tropical storm in Louisiana), power grids in the US coming under strain, perhaps the bigger question is whether there may be a tipping point for what has been a remarkable resilience of the global economy in the face of so much adversity.
Be that as it may, there are a solid beat on South Korea’s provisional Q2 GDP, a much stronger than expected jump in Australian Employment that cements expectations of a further rate hike, and a broad based uptick in French Business Confidence to digest, with UK CBI Industrial Trends, Mexico’s mid-month CPI, US weekly jobless claims and KC Fed Manufacturing and provisional Eurozone Consumer Confidence ahead. Aside from the ECB, Turkey’s TCMB is expected to hold rates at 37.0%, while South Africa’s SARB is expected to hike rates a further 25 bps to 7.25 after stronger than expected CPI earlier in the week.
A busy day for corporate earnings in Europe and the US has BNP Paribas, Centrica, Repsol, Roche, SAP, TotalEnergies and Unicredit, while across the pond Intel will be the focal point, though the likes of Blackstone, Cleveland Cliffs, Newmont Mining and Norfolk Southern will also be among the headline makers.
** Eurozone – ECB rate decision **
The easing in June CPI is expected to have been sufficient for the ECB to hold rates at today’s meeting, along with the Q3 ECB Bank Lending survey that saw a further tightening in financing conditions for a 9th consecutive quarter. But with energy prices rebounding sharply and Lagarde sounding a still hawkish bias on rates even when energy prices had retreated, the messaging will remain hawkish, emphasising upside risks to inflation, while also noting that labour demand remains weak, per se lessening risks of a wage price spiral, and considerable risks to the growth outlook.
It will also reiterate that it has no preset path for rates, which will be decided on a meeting-by-meeting basis. However, it will be interesting to see how it evaluates risks to the economic outlook in the face of the latest surge in energy prices, which so brutally exposes Eurozone vulnerabilities and the lack of progress on formulating a coherent package of measures to improve energy and raw materials security, along with growth and productivity.
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