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ECB Finds Itself Stuck in Fed’s Policy Orbit: Eco Week Ahead

Craig Stirling

(Bloomberg) -- European Central Bank policy makers discussing this week how to set monetary policy for their disease-stricken economy will do so very much in the shadow of their U.S. counterparts.

Officials led by President Christine Lagarde are being forced to confront not only the euro’s strengthening to a two-year high, but also whether a driving force behind that move -- a shift in strategy by the Federal Reserve to periodically tolerate faster inflation -- is one they need to follow too.

The impact of the U.S. central bank’s actions on the ECB’s agenda shows how the euro zone’s monetary authority finds itself momentarily on the back foot as governors reconvene by video after an emphatic summer break.

The ECB’s own review of monetary policy strategy, begun earlier this year in an echo of the Fed’s efforts, was on pause as officials focused on fighting the coronavirus crisis. The U.S. central bank’s verdict is now likely to provide an impetus energizing efforts in Frankfurt to think harder about their approach.

In the meantime, events in the U.S. are likely to keep focusing the ECB in the weeks ahead -- with just two months to go before elections there.

What Bloomberg’s Economists Say...

“Lagarde struck a tone of cautious optimism in July at her last press conference. At the gathering on Sept. 10, she will have even more reason for caution -- signs have emerged that the euro area’s recovery has slowed, virus cases are on the rise and inflation has decelerated sharply.”

--David Powell and Maeva Cousin. Read the full PREVIEW

Elsewhere, central banks in Canada, Malaysia and Peru also take rate decisions and gross domestic product readings in Japan, the U.K. and Russia provide the latest snapshots of their economies.

Click here for what happened last week and below is our wrap of what else is coming up in the global economy.

U.S. and Canada

In the U.S., markets are closed on Monday for the Labor Day holiday and the Fed is in blackout before its next meeting Sept. 15-16. As for economic data, investors will be watching the latest reading of weekly jobless claims on Thursday -- to gauge the strength of the labor market after the August payrolls report -- and for CPI for any insights on prices.

In Canada, the central bank will probably brush off signs of a stronger-than-expected rebound on Wednesday, keeping to its narrative the recovery will be long and bumpy and will need to be supported by monetary policy. Governor Tiff Macklem in July pledged to keep rates at 0.25% for at least two more years, something he’s likely to reiterate this week.

For more, read Bloomberg Economics’ full Week Ahead for the U.S.

Europe, Middle East, Africa

U.K. GDP data will likely show that the pandemic-stricken economy continued its rebound in July. The pace will matter, though, and that could influence the Bank of England’s policy debate the following week.

In the euro area, ECB policy makers will get the latest industrial production numbers for Germany, France and Italy and employment data for the region in the run-up to their rate decision on Thursday.

Norway, which is facing a milder recession than much of Europe thanks to a relatively successful containment of the pandemic, reports a GDP estimate for July.

Russia’s economy probably contracted 8.5% in the second quarter, according to a Bloomberg survey ahead of preliminary data due Wednesday. The central banks of Kazakhstan and Serbia are also scheduled to meet.

South Africa will probably report that its recession extended into a fourth quarter and deepened as the economy contracted the most since at least 1990. Ghana’s inflation data may show price growth started slowing in August, but remained above the central bank’s target band of 6% to 10% for a fifth month.

For more, read Bloomberg Economics’ full Week Ahead for EMEA

Asia

China releases trade data Monday that’s expected to show the export recovery continued in August, while inflation data on Wednesday will likely reveal price pressures moderated and industrial deflation eased last month.

Japan revises GDP on Tuesday with a slightly larger record contraction now expected following weaker capital-spending data. Investors will also be keeping an eye on developments in the leadership race there, though Shinzo Abe’s right-hand man, Yoshihide Suga, appears firmly established as the front-runner.

Malaysia’s central bank meets Thursday to decide on interest rates.

For more, read Bloomberg Economics’ full Week Ahead for Asia

Latin America

Brazil, Mexico and Chile report August consumer-price data this week -- Peru and Colombia are already in. Nowhere is inflation above target and none of the readings will move monetary policy: Banco de Mexico may have one last cut left for 2020 while the rest of the region’s central banks appear set to hold through year-end at the least.

On Thursday, Brazil’s retail-sales report for July is expected to show a jump in demand fueled in part by the government’s massive income support program for 30% of the population. In the evening, Peru’s central bank will probably keep its key rate at a record-low 0.25% for a fifth month.

Mexico’s July industrial output report on Friday should show marginal improvement, but the recovery for Latin America’s second-biggest economy will be long and painfully slow.

For more, read Bloomberg Economics’ full Week Ahead for Latin America

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