We expect no change in monetary policy from major central banks this week. The main focus will be on comments from European Central Bank President Mario Draghi regarding Greece and the Bank of Japan’s economic assessment….
By Damian Künzi – Global Macro Research – Credit Suisse
The European Central Bank’s (ECB) meeting on 16 July will take center stage next week, as it will give ECB President
Mario Draghi the opportunity to comment on recent developments in Greece with a specific focus on the ECB’s emergency liquidity assistance to Greek banks. To reassure mar kets, we expect Mr . Draghi to send a strong signal that the ECB would stand ready to act should risks of financial market contagion to other Eurozone economies increase.
The Bank of Japan (BoJ) meeting on 14–15 July is also in focus, as board members will deliver an interim assessment on the economic outlook. Given the overall positive data releases of late, we expect the BoJ to maintain the current pace of asset purchases and leave its upbeat GDP forecast of 2% for FY 2015 broadly unchanged. On inflation, BoJ Governor Kuroda will likely reiterate that the 2% inflation target will be reached around the middle of FY 2016, notably due to increasing wage pressures. Being a highly ambitious and, in our view, unrealistic goal, we would pay particular attention to the FY 2016 inflation forecast where the median currently stands at exactly 2.0% YoY. A potential downgrade could be read as a sign that the overall degree of conviction to achieve the target already next year would be fading within the board.
We also expect the Bank of Canada to remain on hold at its 15 July meeting. However , the risk of another rate cut has increased due to the renewed drop in oil prices and a series of weak data releases, notably the forth consecutive drop in monthly GDP in April. Markets now price in a 40% probability of a rate cut at the upcoming meeting. However , the June labor market report, published on Friday, came in better than expected, with the unemployment rate remaining at 6.8% and employment declining less than expected (–6.4K) following a marked increase (58.9K) in May. As we expect the Canadian economy to recover following the weak start to the year, we maintain our forecast of stable policy rates going forward.
Source: BONDWorld.it
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