Intesa Sanpaolo : The completion of the strategy review turns the July 22 monetary policy meeting of the European Central Bank from a non-event into something worth watching
Weekly Economic Monitor – 16 Juli 2021
Intesa Sanpaolo – Research Department
The key issue is how the ECB will change the forward guidance: will they take the chance provided by the new policy framework to tweak inflation expectations more aggressively? Later, in September the ECB will face a new challenge with the next decision on PEPP purchases: if the hawks within the governing council take the upper hand, that may spoil most of the benefits of the strategy review.
United States: balancing act for the Fed. Upside surprises on prices have prompted the Fed to reassert its commitment to control inflation and expectations, although so far it remains convinced that the current acceleration of the inflation dynamic will prove to be transitory, tied to “the perfect storm of high demand and low supply”. Powell firmly stressed that “the people must have faith” in the fact that the Fed will act if inflation or expectations stray from paths that are consistent with the monetary policy mandate.
The week’s market movers
Rather quiet week in the euro area in terms of monthly data releases. The focus will be on the ECB monetary policy meeting: after the Central bank’s strategy review we expect a change in the forward guidance – that may have repercussions on the market. July flash PMI surveys should outline a new improvement of the composite and services index, as opposed to a likely correction of the manufacturing index. The European Commission’s consumer confidence index should also improve further. Lastly, business confidence in the manufacturing sector in France is expected unchanged with respect to the previous month.
The week’s most important data releases in the United States will be flash PMIs for July, that should outline a stabilisation at high levels of the pace of expansion of activity, both in the manufacturing and services sectors. The other releases will be referred to June, concentrated in the housing market, with expectations for a solid domestic demand trend and persistent supply-side bottlenecks: housing starts, building permits, and existing home sales should all record moderate improvements.
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