Market movers today
In Europe, Germany’s demand side data for June and preliminary inflation figures for July from France, Italy and the Eurozone are due for release today . The figures are likely to show another marginal deceleration in both monthly and annual price growth. As the low German HICP figure yesterday was a surprise, we revised down our call for today’s Eurozone figures to headline 1.1%, core 1.0% (now in line with Bloomberg consensus).
Preliminary Q2 19 GDP prints for Eurozone, Spain and Italy are due today. We are likely to see a slowdown in the Spanish economy and growth deceleration in the Eurozone, while Italy’s economy has probably shrunk on an annual as well as a quarterly basis. We expect Eurozone’s GDP growth to land at 0.2% q/q. The flash release will not give many clues about the growth drivers, but we expect that lower investment spending was an important part of the story (see Euro Area Research – Catching up with reality, 28 June).
In the US ahead of the FOMC rate decision, the ADP National Employment report will reveal aggregated payroll data for July. The report is set to disclose whether more jobs were created in July recovering from the bottom seen in May 2019, which was a nine-year low.
FOMC historical rate decision will be announced at 20.00 CEST. We expect the Fed to cut its target range by 25bp. It would be the Fed’s first rate cut in 11 years. This time, the question is more about the size of the rate cut and not about whether to cut at all, at least if one looks at market pricing. According to market pricing, probability of a 50bp cut is lower than 50% and, if delivered, 50bp would definitely be a surprise. We continue to believe the Fed will cut twice more during the autumn (September and December), in line with current Fed pricing.
Brazil’s central bank (the BCB) is holding a monetary policy meeting today. The central bank is likely to deliver a historical move, too. In line with Bloomberg consensus, we expect a 25bp cut to the central bank’s Selic rate from the current 6.50%. That would be the first cut in one and a half years, pushing the Selic rate to an all-time low. We expect a dovish tone by the BCB, offering an option for another 25bp cut in 2019, given Brazil’s urgent need for economic revival and continuing soft stance by the ECB and the Fed.
Selected market news
Asian stock markets slid and S&P 500 ended marginally lower as North Korea launched several missiles for the second time in a week, while pessimism over China-US trade talks prevailed. Yet, China’s manufacturing PMI climbed slightly to 49.7 in July (Bloomberg consensus was 49.6). China’s factory activity shrank for the third month in a row.
In his most recent statement, US President Trump blamed China for its unwillingness to buy American agricultural products. Ahead of the Fed’s long-awaited historical cut, Trump called for a ‘large cut’ and to stop ‘immediately the quantitative tightening’.
