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Weekly Fundamental Bulletin: Fed & BoE Meetings

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Last Week’s Highlights

Eurozone Economy Contracts Less than Forecast in Q2

The revised Q2 GDP data from the eurozone had some good news.

Economic activity fell at a slower pace than initially reported. The Eurozone’s GDP fell at a pace of 11.8% compared to the initial reports that showed a 12.1% decline.

Despite the modest improvement, the declines in the GDP were the largest since record-keeping began. The annual GDP recorded a 14.7% decline compared to 15% as per initial estimates.

German Exports Rise for Three Consecutive Months

The monthly export data from Germany, Europe’s largest economy, is showing signs of a rebound, rising for three months in a row.

The latest data for July showed that exports from Germany grew at a pace of 4.7% on a monthly basis.

Despite the increase, the pace was much slower compared to June’s increase of 14.9%. Economists were hoping for a 5% increase for the period.

Imports for the same period fell by 1.1%, compared to a 7% decline in the previous month. The data was a bit disappointing as the forecasts pointed to a 3.3% increase for the period.

Japan’s Economy Contracts More than Expected in Q2

The latest revised GDP numbers from Japan showed that the economy fell at a faster pace than initial estimates. The data covers the second quarter of the year with capital investments posting the sharpest decline.

Japan’s gross domestic product fell by 7.9% on a sequential basis. This was slightly more than the initial estimates showing a 7.8% decline.

On an annual basis, Japan’s economy is down by 28.1% compared to 27.8% in the first quarter.

Capital investment was revised down from -1.5% to -4.7%, while private consumption fell 7.9%.

China’s Inflation Slows in August

The latest consumer price data from China showed that inflation grew at a slower pace in August compared to the month prior.

However, factory price or the producer price index continued to improve. Official data showed that China’s headline inflation rose at a pace of 2.4% in August on a yearly basis. This is a slower pace compared to the 2.7% increase on the year in July.

The data was, however, in line with general forecasts. On a monthly basis, China’s inflation rose by 0.4%.

Producer prices, on the other hand, showed a decline of 2% on the year. This comes on the back of a 2.4% decline in July.

ECB Keeps Rates Steady

The European Central bank held its monetary policy meeting last week. No changes were made to interest rates and the monetary policy also refrained from tweaking its asset purchases.

While the broader market speculation was that the ECB would address the exchange rate concerns, the ECB fell short.

Chief Lagarde said that while the monetary policy committee is monitoring the exchange, the ECB was not targeting the exchange rate. This led to a modest rally in the euro.

Upcoming Economic Events

UK Unemployment Rate to Rise to 4.1%

The monthly labor market report from the UK is scheduled this week. Economists forecast that the unemployment rate will rise from 3.9% in July to 4.1% in August.

This comes as the average wages are set to fall 1.3%, following a 1.2% decline in the previous month. The UK’s unemployment rate is expected to rise higher largely due to a fall in the participation rate.

Speculation is that those who lost the jobs were facing challenges looking for work. The UK government also recently launched an effective furlough scheme. However, as the scheme is set to unwind towards the end of this year, there is a good chance the UK’s unemployment rate will continue to rise in the coming months.

New Zealand GDP to Drop 12.9% in Q2

The Q2 GDP report from New Zealand is forecast to show a 12.9% decline. This comes during the period when the country was in lockdown.

The lockdown is said to have put nearly a third of the economy out of action. The second-quarter decline comes following a 1.6% contraction during the first quarter of this year.

Most of the impact is said to come from the transportation, hospitality, and accommodation sectors.

Household consumption is forecast to contract nearly 20% while residential construction is forecast to fall by over 20%.

Australia Unemployment to Rise Slightly Higher in August

Australia’s monthly labor market report is forecast to show that the unemployment rate will rise by 7.7% in August. This follows an increase to 7.5% in the previous month.

However, underlying data suggests that the number of people re-entering the workforce will continue to rise. This was evident from the data seen in the months of June and July.

There are also expectations that part-time employment figures will also rise. In July, part-time employment was weaker compared to full-time employment while the hours worked had declined.

Fed to Keep Policy on Hold

Investors will be looking to the US Federal Reserve Board meeting this week.

No changes are expected to the US interest rates this week. In August, Fed Chair Powell signaled the Fed’s intention to pursue a strong labor market.

This meant that the Fed would temporarily allow inflation to rise over the 2% target rate.

The Fed will also be releasing its updated economic forecasts. It will be interesting to see if the Fed’s projections show a continued decline in US growth.

BoE to Strike a Dovish Tone

The Bank of England will be holding its monetary policy meeting on Thursday.

While no changes are expected to the interest rates, the central bank is likely to strike a dovish tone this week.

The expectations come amid a possible rise in the unemployment rate and Brexit tensions.

Ahead of the BoE meeting, UK inflation data will also be available. Forecasts point to UK inflation rise just 0.1% in August, following a rise of 1.0% in July on an annual basis.

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