Weekly focus – A summer full of data and central bank meetings

This week has been quiet in terms of global macro data and events. In this final Weekly Focus before the summer break, we will thus mainly highlight key data and events to watch until the Weekly Focus returns on Friday, 16 August.

This week's data releases included June inflation figures from France, Spain, and Italy, which were in line with expectations. Consequently, we continue to anticipate a decline in both euro area headline and core inflation to 2.5% and 2.8% y/y, respectively, on Tuesday. Core inflation remains subdued due to negligible inflation in core goods, while the momentum in core services is higher than the ECB would prefer.

The Ifo index of the German economy declined unexpectedly in June like the PMI report. The decline in June follows three months of increases in the Ifo and PMI indices. While we should not put too much emphasis on one month, the June data clearly questions the strength of the growth rebound in Germany and the euro area.

We can look forward to several significant events and data releases throughout the summer. The upcoming French elections on the next two Sundays could likely result in a "hung parliament," easing market concerns about significant spending increases. Should the National Rally (RN) win an absolute majority, we anticipate a rise in spending. However, RN's recent scaling back of expensive initiatives and softer EU rhetoric suggest that the yield spread to Germany will decrease in either scenario.

In July, the ECB, Fed, and BoJ will hold monetary policy meetings. We anticipate no changes in policy rates from the ECB and Fed, as neither has signalled a pressing need to adjust rates this summer. With inflation remaining persistent and economies coping well with current policies, both are likely to delay any rate cuts until more data is available; we expect the Fed to deliver the first rate cut in September and the ECB in December. At the BoJ meeting, a detailed tapering plan is expected as warranted at the June meeting. We expect no rate hike despite the weak yen as price pressures have muted and we are still waiting for any significant reflationary spillover from the solid spring wage increases.

On the data front, the key data to follow during the summer will be the euro area and US inflation and PMI data. We anticipate that the euro area PMIs will remain largely stable, with the manufacturing sector showing improvement and the service sector maintaining a high level. We expect July HICP at 2.4% y/y. In the US, we expect a gradual cooling of data over the summer, with July's core CPI increasing by 0.2% month-on-month, seasonally adjusted, and non-farm payrolls adding +180k jobs on Friday.

In China focus over the summer will be on the so-called Third Plenum, which is a gathering of the Central Committee of the Chinese communist party, taking place every five years and laying out reform blueprints for the next five years. In terms of key figures, the most important ones will be PMIs, home sales and retail sales.

In Japan, we get the Q2 Tankan survey on Monday, which will be interesting following the steep decline in service PMI for June. The economic recovery in Japan has been sputtering this year and Tankan data will be important input ahead of the 31 July BoJ meeting.

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