Weekly Fundamental Bulletin: BoJ, BoC & ECB Meetings

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Last Week’s Highlights

China’s Consumer Prices Rise at a Steady Pace

The latest data from China showed a steady increase in consumer prices to 2.5% on the year in June. This was up from 2.4% in the previous month.

On a month over month basis, China’s CPI fell 0.1%, but the declines were slower than the 0.8% fall seen in the previous month.

Core inflation, which excludes the volatile food and energy prices, rose at a slower pace of 0.9%, compared to the 1.1% increase in the previous month.

Germany Exports Recover in May

There were some positive signs for the Germany economy last week. Official data from Destatis showed that exports recovered in May as trading resumed following the easing of the COVID restrictions.

Exports rose at a pace of 9% on a month over month basis in May. This helped to reverse some of the 24% declines from the previous month. The increase in exports is the first in the past three months.

Imports also rose by 3.5%, following a 16.6% decline in the month before.

RBA Keeps Interest Rates Steady

The Reserve Bank of Australia held its key interest rates unchanged at record lows. It also kept the target yield on 3-year government bonds unchanged.

The central bank vowed to maintain an accommodative monetary policy as long as required. The central bank’s decision is widely in line with market expectations.

The RBA had cut the interest rates to record lows of 0.25% in March this year, while also introducing its asset purchase program to combat the downturn due to the pandemic.

US Services Sector Rebounds in June

The latest non-manufacturing PMI report from the Institute of Supply Management (ISM) saw a solid rebound in the services sector.

The ISM NMI spiked to 57.1 in June following a slump to 45.4 in May. The move back above the 50-level on the index suggests expansion in the sector.

The data also beat forecasts of a rise to 50.1. The sharp increase is the biggest single-month jump since record-keeping began.

Upcoming Economic Events

New Zealand Q2 Inflation to Drop 0.5%

The latest quarterly inflation report from New Zealand is due this week on Thursday.

Economists forecast that inflation fell 0.5% in the 3 months ending June. This follows a surprise 0.8% increase in the first three months of the year.

On a year over year basis, the headline inflation is forecast to slow down to 2.1%, down from 2.5% in the first quarter of the year.

Bank of Japan to Maintain a Cautious Outlook

The BoJ will be meeting this week and is widely expected to leave interest rates unchanged. The bank might cut its growth forecasts for the fiscal year ending March 2021.

This comes as the BoJ will be releasing its quarterly report on the economy. The central bank ramped up its monetary policy tools in March and April this year. Fiscal stimulus measures were also set up to handle the downturn in the economy due to the pandemic.

Bank of Canada to Keep Interest Rates Steady

The Bank of Canada will be holding its monetary policy meeting this week. The central bank is forecast to leave interest rates unchanged.

The BoC cut rates to historic lows of 0.25% in response to the pandemic earlier this year.

It is likely to maintain a cautious tone, despite the recent jobs report showing that Canadian unemployment fell to 12.3% in June after rising to 13.7% in May. The economy also added nearly one million jobs in June.

ECB to Remain on the Sidelines for the 1st Time Since March

The European Central Bank will be holding its monetary policy meeting this week. However, the central bank, which has been busy since March, is expected to stand pat on policy this week.

The ECB is widely expected to leave interest rates and its asset purchases unchanged. It comes at a time when discussions are taking place regarding the European Recovery Fund.

A final decision is expected anytime this week.

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