After being one of the most aggressive rate cutters, the European Central Bank(ECB) might have been the first major central bank to signal that easing is coming to an end. Of course situations vary between countries. But, a general trend has been that central banks were cutting back after getting post-pandemic inflation under control.
However, the global economy might be picking up despite the trade situation. And increased friction in trade could translate into generally higher prices. Which means that inflation could start threatening to the upside, and leave central banks holding off on more easing until the situation resolves. This, at least, is the current argument of the Fed, and increasingly of the European Central Bank(ECB). Other central banks like the BOE might join in.
Looking for the Signs
The case for the European Central Bank(ECB) is clearer. After years of sluggish economic growth, indicators suggest the European economy is starting to get back into gear. Thanks in no small part to a large increase in government spending. Both factors are generally understood to be inflationary. The UK has underperformed economically in recent months, and so has Australia, but for very different reasons.
A potential reactivation of the economy (and inflation) can often be seen in advance through rising PMI figures. If purchasing managers see growing demand and prices, that could be a sign that the central bank in the coming months might have to adjust its outlook. With a lot of global nations seeing their PMIs overing between expansion and contraction, this could be a pivotal moment to see whether the trend in monetary policy can be sustained. Or, it’s time to think of less easing in the future as businesses figure out how to minimize the impact of tariffs.
The Data in Question
Australia June manufacturing PMI is projected to stay unchanged at 51, firmly in expansion territory. Recently, it was reported that inflation in Australia was lower than expected, leading to expectations that the RBA will cut rates again soon. However, an acceleration in the economy can derail that outlook.
German final June manufacturing PMI is expected to be confirmed at 49.0, up from 48.3 prior. The flash reading earlier this week was above expectations, but so was price pressure. Germany is expected to contribute to higher inflation in the Euro Area this month.
EuroZone final June manufacturing PMI is forecast to be confirmed at 49.4 unchanged from the prior month. This is just shy of the 50 level that divides expansion from contraction. A higher reading here could imply the economy is taking off faster than anticipated, making the case for an longer pause from the European Central Bank(ECB).
UK final June manufacturing PMI is expected to be confirmed at 47.7, up from 46.4 prior. The British economy is recovering from a douse of cold water from last year’s budget that raised taxes. The BOE has continued to say that interest rates need to go down, but a surge in economic activity could change their mind.
US ISM manufacturing PMI is projected to advance to 49.2 from 48.5, reversing a months-long decline as businesses felt pessimistic under the effects of the trade war. This could mean that the economic situation is reaching a turning point as businesses adapt to the new conditions.