Market insight

ECB: inflation first, QE to adapt…

• ECB meeting: no change in current strategy (key rates 0%; deposit rate -0.40%; QE at EUR 60 bn).
• A dovish statement after turbulences in bonds and currencies: forward guidance has not changed and the sentence on QE remained in place: QE to continue until year-end, or beyond and QE could be increased in amounts or duration if necessary.
• Draghi’s speech:
• Risks are balanced; growth to strengthen and inflation to progressively recover. Time necessary for inflation to recover.
• An accommodative policy is needed as long as inflation has not returned to a level close or just below 2%.
• No official date to change QE, but further discussion on QE review to follow on September (waiting for more information on economy/inflation).
• QE to stay flexible (amount, duration) to influence financial conditions, if these conditions act against the inflation recovery.
• Technicals and various QE scenarios/options have not been discussed.
• Strength of the EUR has been discussed during the meeting.
• Next important meetings will be Jackson Hole (24^th-26^th Aug.; Draghi is supposed to speak), and next ECB meeting (7^th Sept.).

US: Philadelphia Fed. (Jul.): 19.5 vs 23 expected (prior: 27.6)

• Sentiment on current conditions has decreased on orders, shipment and employment; opinion on prices paid eased but at a lesser extent.
• Six-month opinions show a rebound in orders, prices and capex, but no rebound on shipment and employment.

US: Initial jobless claims (Jul.15): 233k vs 245k expected (prior: 248k revised from 247k)

• Continuing claims: 1977k after 1949 k past week.

UK: Retail sales (June): 0.6% m/m vs 0.4% expected (prior: -1.1% revised from -1.2%)

• Non-food and household goods sales have rebounded after being depressed in May, helped by good weather conditions.

Germany: PPI (June): 0% m/m vs -0.1% expected (prior: -0.2%)

• Energy and basic goods prices continue to drive inflation lower (PPI: 2.4% y/y after 2.8% y/y in May).

Eurozone: Consumer confidence (Jul.): -1.7 vs -1.2 expected (prior: -1.3)

• Flash estimate was surprisingly lower than past month after a regular improvement.

Switzerland: Trade balance (June): 2.81 Bn CHF (prior: 3.39Bn revised from 3.4Bn)

• Exports and imports were weak, but the monthly correction was larger for exports, narrowing the trade surplus.

Turkey: Consumer confidence (Jul.): 71.3 (prior: 70)

• Sentiment has increased on financial situation and employment, but it has decreased on future economic situation.

US: Housing starts (Jun): 1215k vs 1160k expected (prior: 1122k revised from 1092k)

• On a m/m basis: 8.3% vs 6.2% expected (prior: -2.8% revised from -5.5%)
• Building permits: 1254k vs 1201k (prior: 1168); 7.4% m/m vs 2.8% expected (prior: -4.9%)
• The increase was led by the volatile multifamily category (+13.3% m/m) but single-family starts also increased by 6.3% m/m.

Poland: Retail sales (Jun): 0.9% m/m vs 1.7% expected (prior: -0.2%)

• On a y/y basis: 6% vs 6.8% expected (prior: 8.4%)

Russia: Real wages (Jun): 2.9% y/y vs 3.5% expected (prior: 2.8% revised from 3.7%)

• Real disposable income was unchanged.

Russia: Retail sales (Jun): 1.2% y/y vs 1.1% expected (prior: 0.7%)

• On a m/m basis: 1.1% vs 0.9% expected (prior: 1.8%)

US: NAHB housing market index (July): 64 vs 67 expected (prior: 67)

• All three components softened, with current sales down 2pt to 70, future sales expectations lower by 2pt to 73, and traffic of prospective buyers down 1pt to 48.
• This lower print suggests that the trend in construction activity is slowing, perhaps reflecting the lagged effect of higher mortgage rates.

US: Import price index (June): -0.2% m/m as expected (prior: -0.1% revised from -0.3%)

• Import prices y/y: 1.5% vs 1.3% expected (prior: 2.3% revised from 2.1%)
• Higher imported food prices were more than offset by a drop in petroleum prices and softness in consumer goods categories.

Germany: Zew (July): 17.5 vs 18.0 expected (prior: 18.6)

• Current situation: 86.5 vs 88.0 expected (prior: 88.0)
• Investors appear a bit less exuberant going into Q3, which probably reflects the recent tightening of financial market conditions.

UK: CPI (June): 0.0% m/m vs 0.2% expected (prior: 0.3%)

• CPI y/y: 2.6% vs 2.9% expected (prior: 2.9%)
• Core CPI: 2.4% vs 2.6% expected (prior: 2.6%)
• The drop was led by volatile and core components. Food edged up while energy continues to come off and, at the core level, services inflation was the main source of weakness.
• Weaker inflation will probably challenge the most hawkish members of the Committee calling for an immediate rate hike.

US: Empire manufacturing (July): 9.8 vs 15 expected (prior: 19.8)

• Opinions have decreased on several topics (new orders, shipments, employment and capex) about current and future conditions.
• Prices paid and received have increased.
• This index is traditionally highly volatile; despite a weakening momentum, the index is still at a high level, but points towards moderate growth.

Eurozone: CPI (June): 0% m/m as expected (prior: -0.1%)

• Food and energy prices were the main driver of inflation low; prices for services were up by 0.6% m/m.
• Inflation has eased to 1.3% y/y from 1.4% y/y (core inflation was up from 0.9% y/y to 1.1% y/y): inflation is expected to remain moderate in the coming months, before recovering next year.

Turkey: Unemployment rate (Apr.): 10.5% vs 11% expected (prior: 11.7%)

• Unemployed has decreased and participation rate has increased.