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Intesa Sanpaolo : In the first application of the new monetary policy strategy with a symmetrical inflation target of 2%, the ECB reported that the reference horizon will consist of the second and third year of the forecast scenario.

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Weekly Economic Monitor – 23 Juli  2021

Intesa Sanpaolo – Research Department

However, the Governing Council will not react mechanically, and Lagarde has signalled that they all want to avoid the risk of premature tightening. Precisely to retain flexibility of action, the ECB has left various aspects undefined, including the extent and duration of the potential overshooting of the inflation target.

FOMC: stay the course (for now), in the waters troubled by inflation. The July FOMC meeting will prepare the way for tapering, signaling the opening of discussions to define a plan to reduce purchases, without however giving precise indications on the details and timing of its implementation. The message should be in line with that of Powell’s recent Congressional hearings: transitory inflation upturn and gradual labor market rebalancing, with monetary policy alert and committed to responding to new information in order to meet its mandate on prices and maximum employment.

The week’s market movers

The week will be particularly intense in terms of important data releases in the euro area . National accounts data in Italy, Germany, France, Spain, and for the Eurozone as a whole, should point to average GDP growth in Q2 of over one percent, driven by the easing of restrictions over the Spring months. Flash estimates of July consumer prices are expected to show inflation accelerating in Germany and Italy, and slowing in France. The July surveys (European Commission, German IFO, Italian ISTAT) could reveal the first concerns tied to the resurgence of COVID infections, while confirming an expansionary trend. Also due for release are data on employment in Italy and the euro area in June, and in Germany in July.

The week has two major appointments in the United States , the FOMC meeting and Q2 GDP data. The FOMC meeting is expected to officially open the debate on tapering but also to reiterate the Fed’s commitment to intervene in the event of persistence of the recent upward inflation trend, for now however still judged as transitory. The advance estimate of the Q2 GDP should record further acceleration in growth thanks to final domestic demand, with large positive contributions from consumption and non-residential investments. Among other data, consumer confidence is forecast to correct further in July, on fears for inflation, while the June data should confirm the positive picture for activity. Durable goods orders, new home sales, personal spending and income are expected to rise in June. As regards inflation, the June consumption deflator should mark a new large rise (0.7% m/m) driven by temporary factors.

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