Archive

ECB Job Tightened By Jobs

• The EA labour market proved tighter than the ECB expected in Q2 as the unemployment rate held at a downwardly revised 6.2%. That is hawkish news to its neutral stance.
• Most countries still face falling unemployment, suggesting monetary conditions were slightly loose, and avoiding pressure to lower underlying inflation further.
• A hawkish domestic surprise should keep the ECB on hold, especially with the US trade policy risk fading. Passthrough of past cuts may mean the ECB needs to hike later.

By Philip Rush

Japan: Policy Rate Held At 0.5% (Consensus 0.5%) in Jul-25

• The BoJ held rates steady at 0.5% while dramatically raising its fiscal 2025 inflation forecast to 2.7% from 2.2%, exceeding market expectations and signalling potential policy acceleration.
• The risk assessment shifted from downside-skewed to balanced, the most hawkish change in recent quarters, though Governor Ueda's dovish press conference comments tempered near-term hike expectations.
• The Japan-U.S. trade deal reduces the increased tariff rate to 15%, materially improving the economic outlook. There is now an increased probability of rate hikes by year-end despite ongoing uncertainties.

Colombia: Hawkish Policy Pivot

• Colombian rate held at 9.25% contrary to consensus, with the Board prioritising persistent core inflation over growth concerns in a split 4-3 decision.
• Fiscal deterioration following S&P/Moody's downgrades constrains monetary easing through sovereign risk premium transmission.
• Robust domestic demand growth of 4.1% and sticky services inflation justify a restrictive stance despite headline disinflation to 4.8%.

Activity’s Tariff Hangover In Q2

• GDP growth broadly beat expectations again in Q2 on both sides of the tariff disruption. Euro area growth slowed by less, while the US rebounded vigorously.
• Temporal distortions to demand didn’t open up slack as European supply growth stays stagnant. Surveys suggest it won’t appear in Q3 either as demand growth rebounds.
• Underlying US GDP growth may have slowed, but the extent is modest and questionable. Rolling resilience should keep delaying rate cuts, preventing them from occurring.

By Philip Rush