The ECB took centre of attention this week. According to the monetary policy meeting statement, the ECB intends to end QE by 1 July and hike policy rates by 25bp in connection with the July meeting. The ECB also opened the door for hiking by 50bp in September “if the medium-term inflation outlook persists or deteriorates“. European yields and EUR/USD rose after the announcement. 10yr German bund yields are trading at 1.43% at the time of writing. We now expect the ECB to hike by 25bp in July, 50bp in September and 25bp on each of the following meetings until March 2023 when the hiking cycle is likely to end, in our view. We see risks as skewed towards more 50bp rate hikes. For more see ECB Review: Ready for lift-off – confirmed!, 9 June 2022.
Several central banks are meeting next week. We expect the Federal Reserve to hike by another 50bp on Wednesday and signal that at least one more 50bp rate hike is likely in July. With still high underlying inflation pressure and high labour demand, risk is skewed towards the Fed signalling that more 50bp is needed, not least after Fed’s Waller opened the door for continuing with larger 50bp rate hikes in the autumn.
In the UK, we expect the Bank of England to hike the Bank Rate by another 25bp to 1.25% but simultaneously still sending slightly mixed signals by repeating that “some degree of further tightening in monetary policy may still be appropriate in the coming months” (own highlight).
In Switzerland, we do not expect the SNB to hike at next week’s meeting but the pressure is increasing, as the ECB is about to hike policy rates and CPI inflation is now running close to 3%.
The Bank of Japan has made it very clear that they do not see the weak yen as a problem. With still modest inflation pressure, we expect no changes to the bank’s accommodative stance on the policy meeting ending Friday. In other words, the Bank of Japan remains an outlier among advanced central banks.
Besides plenty of central bank meetings, we have several important data releases next week. In the US, the key release is retail sales in May. In the euro area, ZEW expectations due out on Tuesday will give some hints about growth momentum/confidence. Otherwise focus remains on inflation, including on the announcement of more support measures for consumers and final May HICP figures will give more insights into the core inflation drivers. In China, we get data for credit growth, industrial production and retail sales. Especially credit growth is interesting in the light of more stimulus. We cannot rule out that the Chinese authorities ease monetary policy further (rate cut or lower reserve requirement), which is quite different compared to what is going on in advanced economies.
In Scandi, Swedish inflation data is due out on Tuesday. In Norway, we also receive the monthly GDP estimate for April.