Inflation watch: The ECB signage at its headquarters in Frankfurt. Aside from concerns about tariffs, the euro has strengthened, damping the outlook for prices and threatening to further squeeze exporters. — AP
FRANKFURT: The European Central Bank is likely to stare down the economic danger posed by US President Donald Trump’s tariffs by opting to leave a potential cut in borrowing costs for another day.
In their final decision before a seven-week summer break, policymakers on Thursday will probably keep the interest rate unchanged at 2%, pushing off a response to Trump’s threatened tariffs of 30% until they materialise and their impact can be better assessed.
With many officials likely to use the interlude for a long holiday, the temptation to restate that inflation is at target and to postpone worrying about the economic outlook until new quarterly forecasts are compiled for the Sept 10 to 11 meeting may seem appropriate.
What policymakers do know, however, is that trouble is lurking.
Aside from concerns about tariffs, the euro has strengthened, damping the outlook for prices and threatening to further squeeze exporters.
Meanwhile, another political crisis in France may be brewing over its bloated public finances.
Given that backdrop, the ECB Governing Council could acknowledge among themselves that the chance of another rate cut in September is growing, even if they stick with their well-worn “meeting-by-meeting” approach to decision-making.
In that vein, president Christine Lagarde, in her opening statement to reporters this Thursday, is likely to restate that risks to growth are “tilted to the downside”, Morgan Stanley economists wrote in a preview titled “Ready for the Beach.”
Bloomberg Economics senior euro-area economist David Powell said, “We expect the Governing Council’s language after the July 24 meeting to be similar to the wording in June, leaving open the possibility of additional cuts without committing to them.”
Economic reports in the coming week will inform their deliberations.
They include the ECB’s own bank lending survey, due tomorrow; consumer confidence on Wednesday; and purchasing manager indexes from across the region and other major economies, set for release on Thursday, hours before the outcome of the ECB deliberations.
Other key indicators, such as Germany’s closely watched income from operations business confidence and Italian economic sentiment, will follow on Friday.
Elsewhere, inflation numbers from Japan to Brazil and testimony by the UK central bank chief are among the things in store for investors.
The US economic data calendar is relatively light and highlighted by a pair of housing market reports.
On Wednesday, June data from the National Association of Realtors are projected to show a third month of scant change in sales of previously owned homes.
Contract closings have been hovering near an annualised rate of four million, just above last year’s level, which was the weakest since 2010.
Meanwhile, economists expect a government report on Thursday to show new-home sales recovered a bit in June after posting the biggest monthly decline since 2022.
The pace of contract signings on new houses has largely trended sideways for the better part of two years.
The housing market has struggled to gain traction as elevated mortgage interest rates and affordability constraints keep many potential buyers sidelined.
Other reports include Friday’s release of June durable goods orders, preceded by S&P Global’s July manufacturing and services surveys on Thursday.
Fed policymakers are in a blackout period ahead of their July 29 to 30 meeting, although chair Jerome Powell tomorrow gives welcoming remarks at a conference focused on capital frameworks for large banks.
Further north, the Bank of Canada’s business and consumer surveys for the second quarter will offer fresh insight into inflation expectations and investment plans.
Retail data for May and a flash estimate for June are likely to show slumping sales as consumers pull back after a tariff-driven rush to buy cars earlier in the year.
Two fiscal monitors from the federal government may contain more details about retaliatory tariff revenues collected to date.
Asia’s data docket offers a broad cross-section of economic signals, from trade in South Korea to inflation indicators in Japan, Singapore and New Zealand.
The figures will help clarify how the region’s economies are responding to trade-related uncertainties.
South Korea opens the week today with 20-day trade data, an early indicator for July exports. Next follows consumer confidence on Wednesday and retail sales during the week, offering a read on household conditions after the Bank of Korea held rates steady this month.
Also on today, China will release loan prime rates, which are expected to be kept steady for a second month in July, taking a cue from the People’s Bank of China.
Australia takes the spotlight tomorrowwith minutes from the Reserve Bank of Australia’s (RBA) July policy meeting, at which it shocked investors by keeping rates on hold at 3.85%.
The minutes may offer a clearer sense of how close policymakers are to resuming their easing cycle.
RBA governor Michele Bullock gives a speech on Thursday.
Tomorrow, Taiwan is set to publish export orders for June, along with employment data.
India’s July purchasing managers’ index (PMI), due Thursday, will indicate the resilience of both manufacturing and services activity.
Japan closes out the week on Friday with a full slate of data, including Tokyo consumer price index, department store sales and factory activity.
The inflation reading will offer an early steer on national price trends, while the other releases will help assess how well domestic demand and production are holding up.
New Zealand reports second-quarter inflation today, while Singapore publishes its price gauges on Wednesday and industrial production data on Friday.
Thailand has car sales and customs trade balance figures during the week.
The United Kingdom will release public finance data tomorrow at a time when its economic woes and fiscal position are very much in focus.
With unemployment at a four-year high and growth faltering, PMI numbers on Thursday and retail sales on Friday may also draw attention.
Britain’s exposure to market stress may be a topic when Bank of England governor Andrew Bailey and colleagues testify on financial stability to lawmakers tomorrow. — Bloomberg
