ECB’s Draghi Ponders Acting Now or Later: Global Economy Week
(Bloomberg) -- European Central Bank President Mario Draghi takes center stage this week as investors seek to discover how soon he will act to prop up the ailing euro-area economy.
While Draghi has signaled action is imminent, he has left open the urgency with which policy makers will tackle the current mix of slowing growth and lackluster inflation.
As they meet on Thursday, the choice is to cut interest rates and possibly reactivate bond-buying as soon as then or signal they will start stimulating in September, when there will be more forecasts of the economy.
Economists surveyed by Bloomberg reckon Draghi will show patience and expect the ECB’s deposit rate to be reduced by 10 basis points to a record-low minus 0.5% in September. More than half also see the ECB restarting net asset purchases.
“We expect Mario Draghi to begin setting the stage for his final act at this month’s ECB meeting,” said David Powell, an economist at Bloomberg Economics. “But we’ll probably have to wait until September for the real drama.”
Central bankers the world over are easing monetary policy and the International Monetary Fund will likely justify such shifts when it updates its forecasts for the global economy on Tuesday. In April it forecast growth of 3.3% this year, the weakest since 2009.
Here’s our weekly rundown of other key economic events:
Europe, Middle East and Africa
Draghi will have fresh insight into the economy with consumer confidence data due for release on Tuesday and set to remain disappointing. The next day, an early purchasing manager index for manufacturing is set to remain in contraction territory, although the accompany data for services should show continued expansion. Then on the morning of the ECB decision, the Germany’s Ifo index of business sentiment is predicted to stick close to its lowest level since late 2014.
Elsewhere, Hungary’s central bank is set to stand pat on Tuesday, but Turkey is expected to cut rates on Thursday. Bloomberg Economics predicts a slashing of 300 basis points and warns that could send the lira sliding. One economist surveyed by Bloomberg even forecasts an 800 basis point reduction. Russia may follow up Friday with a 25 basis point reduction in its benchmark. In Africa, Kenya and Nigeria are seen holding for now on rising inflation. Angola has been easing since last July and may do so again on Friday, as it seeks to boost growth after a contraction last year.
Turkish Central Bank Dashboard
In the U.K., the focus will be on Boris Johnson’s likely rise to prime minister. He’s set to appoint a new chancellor of the exchequer and may easy fiscal policy in the coming months.
For more, read Bloomberg Economics’ full Week Ahead for the EMEA
Federal Reserve officials are staying silent ahead of their July 31 meeting, but that won’t stop investors and economists from debating whether they will cut interest rates by 25 basis points or 50 basis points when they gather. Home sector data and Thursday’s durable goods numbers may give the officials something to chew on as will Friday’s first attempt by the government to assess how the economy performed in the second quarter. Economists polled by Bloomberg are betting gross domestic product grew 1.8%.
For more, read Bloomberg Economics’ full Week Ahead for the U.S.
South Korea’s early trade data for July will allow investors to assess the deteriorating outlook for global trade amid the skirmish between the U.S. and China. Further information on that will come Thursday when the nation releases its gross domestic product data for the second quarter after a contraction in the previous three months.
South Korea GDP by Component
Bank of Japan Governor Haruhiko Kuroda speaks in Washington on Monday as many wonder if he has further ammunition to fire at the weak Japanese economy. That comes ahead of Tuesday’s posting of machine tool orders numbers and Friday’s release of early July inflation data for Tokyo. Bloomberg Economics reckons inflation statistics from Singapore and Malaysia will be relatively benign.
For more, read Bloomberg Economics’ full Week Ahead for Asia
Inflation is expected to slow and open up room for interest rate cuts in Latin America’s two largest economies, according to mid-June data due this week. On Tuesday, Brazil’s consumer price index will probably show an increase at an annual pace of 3.28%, according to Bloomberg Economics, way below the 4.25% target. A cut to the Brazilian benchmark rate could come as early as this month, economists say.
Mexico Bi-Weekly Consumer Price Inflation
On Wednesday, Mexico’s bi-weekly CPI is forecast to slow to 3.82%, within the 2%-4% target, supporting the outlook for lower borrowing costs this year. Elsewhere in the region, Argentina’s May economic activity data due on Thursday may provide signs that its economy is emerging from recession.
For more, read Bloomberg Economics’ full Week Ahead for Latin America
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