Archive

HEW: Consolidating Risk-off

• An unwind of equity longs and FX carry trades looks like a generalised reduction of risk assigned to consensus positions without significant macro news. Trading Trump seems like an uncompelling cause, and the US services PMI was rudely strong again.
• Market repricing should also respond to policy next week. A BOJ hike would help keep the desired Yen strength while the Fed softly signalling September would offer reassurance. A BoE rate cut would likely clear out more crowded sterling long positions.

By Philip Rush

Canada Policy Interest Rate 4.5% (consensus 4.5%) in Jul-24

• The Bank of Canada reduced the policy interest rate by 25 basis points to 4.5%, consistent with the economic consensus, reflecting increased confidence in achieving the 2% inflation target.
• Canada's GDP growth increased to 1.5% in H1 2024, with CPI inflation moderating to 2.7% in June; core inflation measures indicate continued downward momentum, although shelter costs remain a significant inflationary pressure.
• The Bank remains vigilant about inflation risks, particularly from shelter and wage-driven services, and will base future interest rate decisions on incoming data and their implications for the inflation outlook, ensuring balanced economic growth and price stability.

PMIs Persist Past Softening Seasonals

• The PMIs proved surprisingly resilient in the flash releases for July, especially in the US where its already high level pushed up further rather than converge down to its peers.
• Residual seasonality should be depressing the activity data, as appears to have occurred in the EA. Other US data softened, including the ISM, leaving the PMI as an outlier.
• Central banks seem set to conclude that policy is still tight amid broader softening signals. Indeed, we still expect the Fed to start a short rate-cutting cycle in September.

By Philip Rush

Lane - Opening remarks

Welcome address by Philip R. Lane, Member of the Executive Board of the ECB, at the Joint ECB-IMF-IMFER Conference 2024


Philip R. Lane's speech at the Joint ECB-IMF-IMFER Conference underscored the importance of integrating advanced methodological developments and granular data into the ECB’s policy framework. He highlighted the crucial role of heterogeneity in understanding economic behaviors and the benefits of employing multi-sectoral and multi-country models to analyze diverse economic impacts. Surveys and granular datasets are increasingly central to the ECB’s analytical framework, informing monetary policy by offering insights into bank-, firm-, and household-level activities. Lane emphasized the use of these tools in understanding the macroeconomic implications of varying conditions and noted the advancements in understanding monetary policy transmission due to the availability of detailed financial data. Overall, Lane expressed confidence that academic research and detailed data analysis would continue to enhance the ECB’s policy decisions.

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- Positivity: 85
- Uncertainty: 30