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Newsquawk Week Ahead 19-23rd July; highlights include PBoC, ECB, PMIs


  • MON: UK Lockdown Easing (TBC)
  • TUE: RBA Minutes (July); PBoC LPR (Jul); Japanese CPI (Jun)
  • WED: BoJ Minutes (June); Australian Retail Sales (Jun)
  • THU: ECB Policy Decision, SARB and Bank of Indonesia Policy Decisions, Japan Market Holiday (Marine Day)
  • FRI: EZ, UK and US Flash PMIs (Jul); UK Retail Sales (Jun); CBR Policy Decision, EU Economic/Financial Affairs Council (Budget), Japan Market Holiday (National Sports Day)

NOTE: Previews are listed in day-order

RBA MINUTES (TUE): The RBA will release the minutes from its July 6th meeting on Tuesday in which participants will be looking out for any more clues regarding the central bank’s thinking. As a reminder, the RBA maintained the Cash Rate Target and 3yr yield target unchanged at 0.10% as expected and announced it will retain the April 2024 bond for its 3yr yield target instead of shifting to the November 2024 bond which would have otherwise been viewed as a signal of no tightening until 2025. The central bank also announced a third round of bond purchases when the current program is completed in September, which will be conducted through to mid-November at a weekly pace of AUD 4bln (prev. 5bln), while the RBA will then revisit it in November to allow the Board to respond to the state of the economy at that time which suggests a more flexible approach. Furthermore, the RBA reaffirmed that the Board is committed to maintaining highly supportive monetary policy and will not raise the cash rate until inflation is sustainably within the 2%-3% target, while it added it is unlikely that employment and inflation goals will be achieved before 2024 and it will continue to purchase bonds as it remains a distance from goals. This suggests a highly dovish stance which would likely persist given that since the meeting, the lockdown in Sydney has been extended to 30th July and Melbourne has also been placed under a snap lockdown, with some now forecasting a contraction to the national economy for Q3 due to the restrictions in Australia’s two most populated cities.

PBOC LPR (TUE): The PBoC is to decide on its benchmark lending rates with the 1-Year Loan Prime Rate currently at 3.85% and 5-Year Loan Prime Rate at 4.65%, which if maintained, would be the 15th consecutive month the central bank has refrained from any adjustments. As a reminder, the PBoC recently announced a cut in the RRR by 50bps effective July 15th which released around CNY 1tln of long-term liquidity, but reiterated that it will maintain prudent monetary policy and keep liquidity reasonably ample. This action by the PBoC suggested the central bank is more willing to provide support for the real economy and a recent local press report also noted that China may reduce the Loan Prime Rate, but not cut the policy rate. Conversely, the central bank had only rolled over CNY 100bln in MLF loans compared to the CNY 400bln expiring this month and its decision to maintain the 1-year MLF rate at 2.95% dampens the prospect of a cut to the 1-year Loan Prime Rate given that the former is seen as a bellwether, as the central bank had cut it first prior to adjusting the LPR on the prior 3 occasions that it lowered the benchmark which last occurred in April 2020. The recent key economic releases from China also suggest a lack of urgency to act, including mixed GDP data, which showed economic growth Y/Y in Q2 slowed to 7.9% vs exp. 8.1% (prev. 18.3%), although GDP Q/Q beat expectations at 1.3% vs exp. 1.2% (prev. 0.6%) and both the latest Industrial Production and Retail Sales figures also topped forecasts.

JAPAN CPI (TUE): Analysts look for core nationwide CPI to rise to 0.2% Y/Y from 0.1% in May. Usually, analysts look at the forward-looking Tokyo CPI data for clues about how the national CPI data will fare, however, Pantheon Macroeconomics notes that national CPI has actually been leading the Tokyo metrics recently. The Tokyo CPI data was flat Y/Y in June, after a 0.4% decline in May, with the main driver being energy prices (-0.4% M/M in June vs -1.3% M/M in May). Pantheon says however, that the national gauge is already ahead of that story, and Tokyo prices are more useful as a guide to food prices and the core. "Private transportation inflation has run ahead of the pace we were expecting, and the June Tokyo figures now point to a temporary pullback," it writes, and "a jump in education inflation, however, seems likely to have offset that, though base effects will now form a drag on further inflation gains." The result, Pantheon says, is that headline national CPI inflation may have jumped to as much as +0.8% in June, from deflation of -0.1% in May (Reuters does not yet have a consensus for the headline metric; only the core). Ahead, Pantheon says inflation then has further to run, thanks to energy, but it is expected to decline quickly later.

AUSTRALIAN RETAIL SALES (WED): The prelim retail sales headline is expected to show a decline of 0.4% after the metric rose 0.4% in May. Desks note that the full impact of Victoria's state lockdown will hit in June, whilst sales in July are expected to be even worse due to an extended lockdown in Sydney, alongside the recently announced Victoria State snap lockdown. Analysts at Westpac expect a shallower decline in the headline, at -0.2%. "Our Westpac Card Tracker suggests sales overall held up reasonably well in June. That said, a sharp contraction in hours worked in Vic points to a material impact on activity", the bank said.

ECB POLICY DECISION (THU): With rates set to be left unchanged, PEPP purchases set to be conducted at a "significantly higher pace than during the first months of the year" and the PEPP envelope held at EUR 1.85tln until at least the end of March 2022, the upcoming meeting was expected to be a relatively uneventful affair. As the pace of PEPP purchases is not due to be reviewed until the September meeting alongside accompanying macro projections, the focus of the July meeting was set to centre around taking stock of the Eurozone's recovery as lockdown restrictions are unwound and concerns over the Delta variant persist. However, last week's unveiling of the Bank's strategic review has now reshaped expectations for next week with the announcement/press conference set to offer further clarity on the review's findings. The key takeaway last week was the ECB's decision to set a symmetric 2% inflation target over the medium-term (vs. prev "close to, but below 2%). As such, and signalled by President Lagarde, the ECB will now be reviewing its forward guidance for the upcoming meeting and is likely to tie its new inflation mandate to future rate hikes. However, Lagarde has also suggested that the Bank's current PEPP will need to "transition into a new format". Whether this will be announced or at least signalled next week remains to be seen. However, as part of the Bank's commitment to reaffirm its support for the Eurozone economy, a bolstering of the APP when PEPP concludes in 2022 is a near-inevitability (note, consensus had already leaned towards this for several months). Furthermore, ING has suggested that the ECB could opt to link its new inflation mandate to forward guidance which could help underscore the Bank's commitment to support the Eurozone economy, particularly given that it projects inflation in 2023 at just 1.4%. Ultimately, given the findings of the review and messaging since, the ECB appears to be leaning towards favouring more dovish guidance than it already has and therefore lower nominal yields for longer are to be expected. That said, such a stance will likely not sit well with hawks on the Governing Council that, ahead of the review, were wanting to lower the current pace of PEPP purchases. Accordingly, they will likely argue that the review merely formalises the approach the Bank was already taking, and as such there is no need for a further dovish tilt by the Bank. Overall, what was expected to be an uneventful affair is now set to be a meeting that could define the ECB's policy outlook for the coming years.

SARB POLICY DECISION (THU): The consensus expects South Africa's central bank will hold its repo rate at 3.50%; and the general view is that the SARB will hold rates at these levels through the end of the year, with analysts suggesting that the next move will be a 25bps hike in either January or March 2022, and ahead, the expectation is that rates will rise to 4.00% by end-2022, and then 4.50% by end-2023. The SARB is expected to look through the transitory higher inflation in the near-term, where headline inflation jumped to a 30-month high of 5.2% Y/Y in May from 4.4%. Core inflation, however, remains within the SARB's 3-6% tolerance band (at 3.1% Y/Y).

EZ FLASH PMIs (FRI): Analysts are expecting a mixed performance in the Eurozone's July flash PMI data, with the consensus looking for the manufacturing gauge to ease to 62.5 from 63.4, services seen rising to 59.5 from 58.3, which should leave the composite PMI a little higher at 60.1 from 59.5. European lockdowns continued to ease in the month, although with less vigour than in May and June, analysts note, which should provide a support to activity. The forward-looking new orders metrics in the June data also augur well. Desks are also noting that despite expectation that the manufacturing data will ease in the month, the sector is still performing well relative to history (four consecutive prints above 60.0), although some of the hard data isn't quite matching that optimism (industrial production, for instance).

UK FLASH PMIs (FRI): The UK's flash July services and manufacturing PMIs are seen easing a touch from June levels; the services is seen easing to 62.0 from 62.4, while the manufacturing is seen falling by a full point to 62.9. Both of these metrics eased in June following the May/June reopening impulse, and analysts weren't too surprised by the declines last month, particularly given that the indices themselves still remain at historically elevated levels. And this effect could continue to be seen in the July data, analysts say. Some desks point out that GDP data, however, has been decelerating since March on a M/M basis, and that might suggest that the PMI data is overstating the growth picture.

UK RETAIL SALES (FRI): Retail sales are expected to rise by 1.2% M/M in June from a prior -1.4% in May, which was the first decline since January, and came after indoor hospitality venues reopened in mid-May. That reopening weighed on food retailers. Oxford Economics said that "initial plans to lift most remaining Covid restrictions on 21st June were delayed meant retail spending avoided a further drag from consumers switching from shopping to socialising," but its economists, who are not in line with the consensus view, warn that "a return to more normal spending patterns facilitated by the earlier reopening points to retail sales dropping a further 0.5% M/M in June."

CBR POLICY DECISION (FRI): At its previous meeting in June, the CBR hiked rates by 50bps to 5.50%, matching the consensus forecast. "Judging by the statement and the comments of Governor Nabiullina, CPI inflation data had a shocking effect on the CBR, which was aggressively hawkish in its comments," Credit Suisse said, "the statement left the door open for a further increase in the policy rate at one of the next rate-setting meetings," given that the CBR's view of inflation risks has firmed amid a quicker economic recovery (relative to the April forecasts), the rise in global commodities, as well as higher inflation expectations." CS notes that "the recent data for June showed a further increase in CPI inflation and inflation expectations, followed by very hawkish remarks by Governor Nabiullina, who did not rule out a 100bps hike at the next meeting." Accordingly, CS looks for a 100bps hike, taking the CBR's main policy rate to 6.50%, and then sees another 25bps rate rise at the September meeting. "The main risk to this outlook is a further deterioration in the COVID pandemic, which had already pushed the mayor of Moscow to tighten COVID-related restrictions from 14th June," it adds.

CANADA RETAIL SALES (FRI): There is not yet a consensus for the May retail sales data, although StatsCan's flash estimate has suggested a -3.2% M/M reading, from the prior decline of 5.7% in April. Canadian bank RBC says the main focus within the release will be on StatsCan's advanced estimate for June, which is expected to show a bounceback as the ramp-up in vaccine distribution and falling case counts led to re-openings across most of the country.

POTENTIAL US-CHINA MEETING: China has reportedly denied the request for US Deputy Secretary of State Sherman to meet with her Chinese counterpart during a proposed visit to the country next week, according to the FT. However, SCMP sources later suggested that China is still preparing to host US Deputy Secretary of State Wendy Sherman in Tianjin later this month, but the two sides are haggling over protocol details and are not yet ready to make an official announcement. SCMP earlier in the week suggested that Washington will be sending Deputy Secretary of State Sherman to China next week (date TBC) to meet with Vice Foreign Minister Xie Feng, citing a source. The meeting was to serve as a precursor for a meeting between Secretary of State Blinken and China's Foreign Minister Wang Yi, the source added. The meeting is reportedly to "touch base and for both sides to get a sense of where the relationship is going" and also comes as tensions remain heightened on several fronts. The US early this week ramped up its rhetoric on the Xinjiang issue as it warned American companies with interests in the area risk breaking US law. Furthermore, the military landscape remains heated. Also earlier this week, China said it "drove away" a US warship that trespassed Chinese territory in the South China Sea. Furthermore, China warned the US of "serious consequences" after the US Air Force delivered "diplomatic mail" to the de facto US embassy in Taipei, with Beijing claiming that the US trespassed its airspace. The trade deal will likely not be revisited in a meaningful way next week, if a meeting were to take place, as the trade representatives from both sides are not meeting, as far as the reports went. Any meetings without the trade officials will be observed with a geopolitical lens, and the tone between the nations will be eyed. SCMP also suggested that a meeting between the Deputy State and Vice Foreign Minister could eventually pave the way for a summit between the two presidents - some have raised the possibility of a Biden-Xi meeting at the October G20 summit in Rome. Any joint press conference or joint statement will be viewed as constructive.