ECB is not expected to cut in July but will it signal one for next meeting? Retail sales will be the main highlight in the United States. UK CPI report will be vital for BoE’s August decision. China GDP data to kickstart busy week.
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Welcome to another episode of Global Market Insights, brought to you by XM.com, where we provide meaningful and informative content about the events that affect market trends and shape global markets. The European Central Bank was the first major bank to start a rate-cutting cycle last month. Well, it continued to cut rates this month as well. This is the week ahead. Thanks for joining us at XM.com. I'm Cristina Marojos, and with me today to unpack the week ahead is our lead investment analyst Raftwyr Jian. So Raftwyr, the ECB meets on Thursday amid sticky inflation. Do you think policymakers will deliver another 25 basis points cut? Well, Cristina, it was looking pretty certain a few weeks ago that we would get back to back rate cuts. But then, of course, things started to go wrong for the ECB because, of course, last month's rate cuts had been telegraphed well in advance. Right before the meeting, we started to get some worrying data, which kind of contradicted with the thinking that the timing of the rate cut was correct, the due meeting. So the ECB is now in a situation where they really need to wait a little bit before cutting again. So, it's pretty certain we're not going to get any policy changes at the July decision, but there will be some focus on what exactly, how they're actually going to word their statement, as well as, of course, President Lagarde's press briefing, because on the whole, we are hearing from ECB officials that most of them do support at least one more rate cut this year. So the question mark really is about whether or not we're going to get a third rate cut in 2024 as well. Looking at the data, inflation did take a little bit lower in June. We're going to get those final estimates next week as well. But wage growth is proving to be a little bit more consistent than the ECB had hoped. So I think right now the ECB will want to sit out the rest of the summer and see where things stand in September, but the question is, for the euro, is Lagarde going to give us an explicit signal that we should expect a rate cut in September, or is she going to be a little bit more vague as in saying, most likely it will be appropriate to ease again, but not really commit to any particular time frame. So if she takes that approach, this might be seen as a little bit more hawkish, we could see the euro gain a little bit on the back of that. Now let's cross to the United Kingdom, a plethora of data releases in the UK will keep pound traders on their toes, particularly the all-important CPI report on Wednesday. How could we see Sterling perform this week? So Sterling is really having a fantastic time at the moment against the US dollar. You know, it's reclaimed 1.29 handle, and so we've had some positive news, well first of all, we had the UK general election, which gave us a strong labor win. So although labor might not necessarily be as positive for the economy as say the consultants, but I think this Labour government and the Kia Starmer definitely, it has promised they're not going to go too much to the left, they're going to stick to the center, so they're not going to do anything to say in terms of big rate hikes or big spending increases. So markets are pleased about that, and of course with the song majority, we get to have a stable government. But then we've also been having some rapid economic data, we had the upward revision to the first quarter GDP growth numbers, we saw stronger than expected GDP growth for the month of May, and then we could also see very strong growth over the summer period as well. And this has raised question marks whether or not the Bank of England will be able to start cutting rates as early as the August meeting. Now the inflation data on the face of it does support a rate cut soon because the headline figure did fall to 2%, so it's going to be interesting to see where inflation goes, you know whether it maybe rises a little bit in June or maybe falls below 2%, so the CPI data will be crucial to the August decision, but you know the Bank of England will be looking at the details, not just the underlying measure of inflation but also a more focused measure on services inflation which does remain quite high, and also the jobs data next week is going to be quite important as well because wage growth has been moderating very slowly so Bank of England will want to see some positive signs in terms of services, inflation and wage growth before it can feel more confident about cutting rates as early as the August meeting because you know if the economy is doing well you know there's not going to be that urgency to cut rates, so I think the upcoming data will be quite crucial for sterling if you get any downside surprises definitely that could figure a round of profit taking for the pound. Now Raffi let's look at the US dollar, we'll have to digest increasing market beds of the September Fed rate cut and of course retail sales data out on Tuesday, how could we see the greenback performed this week? So dollar really has come under heavy selling pressure, now of course this past week we had Powell testifying in Congress, it's a bit difficult to judge you know whether he was being a hawkish or a davish, I guess he kept the door wide open to an early rate cut but he was done committal so that could be interpreted as a little bit hawkish but I think what's really changed things for the dollar is that CPR report for June which came in below expectations, so clearly now we're getting more clear evidence that inflation is now headed down again, you know this was of course the main reason why the Fed you know didn't make, hasn't already cut rates but now September rate cut is looking more and more certain and markets are maybe thinking well you know what we might even get a third rate cut possibly this year which is unlikely but some investors are going that way. Now the other good thing for rate cut expectations maybe not so much for the economy is that consumption has also been slowing so you know the retail sales numbers next week will be you know a further update on you know where things stand in terms of consumption, we're expecting flat growth for the month of June, any unexpected rebound there might see those rate cut that's being paired back a little bit and we might see the dollar perhaps recoup some of its latest losses. And finally let's look at China we'll be getting GDP data for quarter two, should we be worried about a worsening situation in China? Well markets are, they are worried I think what we've seen though is that at the same time they've kind of given up on expecting big stimulus from the Chinese government so the GDP data will tell us you know where the things are improving or not probably looking at the forecast, we're expecting a slowdown year on year from 5.3 to 5.1 percent for the second quarter we're also going to get the latest monthly readings on industrial output and retail sales. Now exports have helped industrial output do a little bit better but consumption remains fairly subdued and although you know as I said markets not expecting any major stimulus packages we can't rule out any surprise announcements next week because we are going to have the third plenum this is of course part of seven plenums that the Communist Party leaders hold every five years to basically set out the agenda for the next five years and the third plenum is the one that they discuss economic policies. Now it doesn't necessarily mean that it's going to be followed up by actual policy measures but you know you can't rule out any surprises that's something to keep an eye on otherwise I think if we get any downside surprises in GDP numbers that could weigh on sentiment at the start of the trading week. Raffi, thanks so much. If you liked this video make sure to give us a like and of course subscribe to our channel to stay up to date with all financial news by XM. This was the week ahead, thanks for watching. Thank you for listening to another episode of Global Market Insights brought to you by XM.com. For more in-depth technical and fundamental analysis be sure to visit www.xm.com/research. (gentle music)
