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European Central Bank officials will debate whether to extend their high pace of emergency bond purchases this week, a judgment that rests on the fragility they determine for the economy’s recovery.
Confidence has been the strongest for three years, factory outlet prices have increased the most since 2008, and inflation is technically above target. Yet many policymakers have reported that not enough to change course – continued ultra-loose politics is needed to bring home the rebound from an unprecedented crisis that is not yet over.
Underpinning their decision on Thursday are new economic forecasts, which will likely highlight the volatility of incoming data. Officials led by President Christine Lagarde have predicted the surge in inflation and insist it will be temporary as energy prices stabilize and shortages that have hampered businesses are overcome.
Instead, some members of the Governing Council fear that the economic weaknesses hinted at in data such as France’s surprise in the first quarter the contraction might hide under a summer buoyancy plating as the blockages loosen. Rising bond yields and a stronger euro give them arguments to argue that the ECB needs to do more to meet its commitment to maintain favorable financing conditions.
A heated debate is likely, however, in a possible precursor to the discussion the Federal Reserve will have next week on whether to maintain its own. stimulus or start reducing it.
For both central banks, the extreme circumstances of the pandemic are an obstacle to assessing the prospects for price stability. Outgoing OECD chief Angel Gurria argued last week that now was not the time to worry about inflation – but with a caveat: “We should always keep it in mind. “
What Bloomberg Economics Says:
“As intra-eurozone yield spreads widen, apparently now is not the time for hawks to bicker over more bond purchases. We expect policymakers to opt for an additional three months of “significantly higher” purchases under the Emergency Pandemic Purchase Program. “
–David Powell and Maeva Cousin. For a complete overview, Click here
Elsewhere, Canada’s central bank should continue to prepare the ground for tightening monetary policy, while Russia may raise interest rates. The World Trade Organization is meeting on Tuesday to discuss expanding production of Covid vaccine facilities.
Click here to find out what happened over the past week and here’s our recap of what’s happening in the global economy.
Europe, Middle East, Africa
It’s not just the ECB’s rally in the region this week. Bank of Russia holds rate-setting meeting on Friday in which it will review another hike in an attempt to contain soaring inflation, with officials warning the economy is already threatened with overheating.
Polish policymakers meet on Wednesday after inflation hit a decade high last week. This will test the institution’s long-standing stable rates mantra. The central banks of Kazakhstan and Uzbekistan also set rates.
With the full reopening of the UK on June 21 more and more question, investors will closely monitor the monthly GDP, industrial production and trade figures expected on Friday.
South Africa’s first quarter GDP reading is due Tuesday, with economists predicting quarterly expansion but annual contraction. The Turkish Statistical Institute will release unemployment figures for April on Thursday, and data for the same day could show that inflation in Egypt accelerated in May.
Finance ministers from at least four East African countries will present their budgets for 2021-2022 on Thursday and Friday.
United States and Canada
In the United States, all eyes will be on the latest Consumer Price Index reading on Thursday, given the intense debate surrounding inflation. Other data points to come include April’s job postings and the upcoming Unemployment Claims report, which fell below 400,000 in last week’s release for the first time since pandemic.
Fed policymakers are out of power this coming week ahead of their next meeting on June 15-16.
Investors will watch the Bank of Canada, which will announce its rate decision on Wednesday, for any hints on plans to tighten monetary policy.
Japan and South Korea release revised production figures that will confirm their contrasting fortunes.
Japan remains in a viral emergency that puts its economy in danger of a double dip and makes the organization of the Olympics less than clear. The Korean economy is of course a on the way to recovery, although Wednesday’s employment figures will be closely watched to see if the rise filters beyond the exports sector.
Bank of Korea Governor Lee Ju-yeol is expected to deliver a birthday speech at the end of the week as bets on rate hikes mount. Bank of Japan Deputy Governor Masayoshi Amamiya will speak on Libor as the central bank continues to push for faster efforts to move away from the benchmark.
Economists predict that Wednesday’s data will show that China’s producer prices rose 8.4% in May from a year earlier – the fastest pace since 2008 – while consumer prices rose 1.6%. It would be the biggest gap between the two since 2017.
Chile reports May trade figures, including copper exports, which recorded the second best month in 25 years in April. Inflation data should show prices are climbing, but year-end expectations are anchored near target. The central bank, which meets on Tuesday, is expected to keep its key rate at a record 0.5%.
Brazil’s retail sales report for April is expected to show some weakening from March, while the year-over-year figure could reach a record high due to the base effect.
Expect consumer prices in Mexico to decline slightly in May from April’s 6% year-on-year, while Brazil’s core inflation index may have exceeded 8%. The central banks of the two countries will meet later this month.
Latin America’s second-largest economy is well on the way to a recovery, but this week’s probably spectacular industrial production data will owe a lot to the comparison of the base effect with last spring’s shutdown in Mexico.
Finally, Peru’s central bank will almost certainly keep its key rate at a record low of 0.25% for the 14th consecutive month.
– With assistance from Paul Gordon, Theophilos Argitis, Peggy Collins, Robert Jameson, Rene Vollgraaff and Michael Winfrey