Monday, 29 July, 2019
Archr News Update
KEY EVENTS
FOMC meeting (Wednesday) – US Economics Weekly
25bp cut this week and then again in September: Citi economists expect a 25bp cut this week, together with an early-end to balance sheet reduction. Recently stronger data and many Fed officials sitting on the fence regarding the need for more accommodation make a 50bp cut less likely. Following this cut, Citi expect one additional 25bp cut, most likely in September. Base-effects returning core PCE inflation close to 2% should help keep rates on hold in 2020.
MPC meeting and Inflation Report (Thursday) – BoE Preview
No change: Our economists expect the policy rate to remain unchanged this week. There should be some downward revisions to the GDP forecasts due to the global slowdown, partly offset by a lower conditioning path for interest rates.
Guidance tweaked but not dropped: Rate setters may signal that the rate hike path would be even shallower than they thought before, but chances that the MPC will drop its guidance towards gradual and limited rate hikes are small, in our view, because the Bank will continue to assume a “smooth Brexit” scenario.
A new scenario? The Bank may start laying out its reaction function to another Brexit delay in October, rather than deal or no-deal. In such a scenario, a rate cut would be possible as early as November, but not our base case.
Key economic data
*Euro area 2Q advance GDP (Wednesday): Citi expect 2Q GDP growth at just 0.1% QQ (consensus 0.2%), the slowest pace since 2013. The manufacturing recession is weighing on overall economic activity. Signs of slowing business investment may also start to appear in 2Q.
*Euro area flash HICP (Wednesday): Base effects and the recent decline in oil prices are partly behind the likely further drop in euro area headline inflation in July to an 18-month low of 1.1%. Core HICP should have remained stable at 1.1% (consensus 1.0%).
*Euro area economic confidence (Tuesday): Citi forecast the Economic Sentiment Indicator (ESI) to decline again in July to 102.6 (prior 103.3, consensus 102.8), 12th drop in 13 months, with a rebound in households outweighed by decline in industrial, services, retail and construction.
*Euro area unemployment rate (Wednesday): The job market remains resilient to the recession in the manufacturing. Citi forecast 7.4% in June, -0.1pp vs May.
*Euro area final manufacturing PMI (Thursday): Citi expect the final manufacturing PMI to confirm the 1.2pt drop in the flash to 46.4 in July.
*UK manufacturing PMI (Thursday): Citi expect UK manufacturing to remain in contraction territory as no-deal uncertainty weighs on investment and orders. US trade wars, weakness in China and continental Europe should weigh on foreign demand and there may still be some unwinding of stockpiles in the system.
*US NFP and U. Mich. survey (Friday): The consensus is looking for the change in non-farm payrolls to decline to 160k in July from 224k prior. The unemployment rate is expected to be unchanged. The final University of Michigan sentiment indicator should improve flash of 98.4 slightly to 98.5 for July (prior 98.2).
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