Looking at COVID-19, the number of new cases in the US is peaking while it is rising in Europe. However the development across Europe differs by markedly country. In France and Spain, the second wave is as big as the first, while the number of new cases in Italy, Germany and the UK is only rising slowly right now. One striking thing is that while new cases are rising in Europe, new deaths are not and there is no pressure on hospitals. This means that the politicians do not have to close down the entire economy again and can focus on local and targeted measures to contain the virus. The development across the Nordics looks good with few new cases (also in Sweden) and almost no reported deaths. For more details see COVID-19 Update: New cases continue to rise in Europe but new deaths remain low and stable, 3 September. Unfortunately, from an economic perspective, the euro area macro momentum seems to be cooling down driven by (among other things) the development of COVID-19, see Euro Area Macro Monitor: Cooling down after a hot summer, 3 September.
The Federal Reserve has changed its monetary policy strategy and as a result we now expect the Federal Reserve is going to change its forward guidance and increase QE bond buying, see Fed Monitor: Forward guidance linked to inflation outcomes and faster QE buying on the cards, 2 September. Note that the Fed’s blackout period begins tomorrow, i.e. no more signals ahead of the Fed’s two-day meeting on 15-16 September.
We look forward to the ECB meeting on Thursday, which also carries new staff projections. We expect the ECB to repeat its “readiness to act” stance, while looking into an uncertain economic and inflationary outlook. As such, we expect a relatively uneventful meeting with no new policy signals. That said, with recent diverging comments from Weidmann/Schnabel vs Lane we may be see disagreement building, notably on the QE programme and the size of future policy response. We expect the ECB to face questions on the Fed’s average inflation target (AIT) regime and the implications for the ECB’s strategic review which is restarting now. We expect Lagarde to take note of the Fed’s AIT regime and say that the ECB will not draw premature conclusions on its own review.
We do not expect many interesting global data releases next week besides the monthly GDP estimate for July in the UK. Also note that the EU-UK Brexit negotiations continue on Monday. So far there has not been any breakthrough in the negotiations, see Brexit Monitor: Deal or no deal boils down to what PM Boris Johnson wants, 28 August.
In Japan, the ruling Lib Dems are in the midst of finding PM Abe’s successor. Formally, this will happen in a party vote on 14 September. The favourite is currently cabinet chief secretary and Abe’s right hand man Yoshihide Suga, who said he would continue with Abe’s economic policy.
In the Nordics, we get CPI inflation data for August in Denmark, Sweden and Norway. In Norway, we get the monthly GDP estimate for July and in Sweden we get production data for July.
