Today at 9:30am, the main event at the ECB’s Sintra annual forum sees ECB President Lagarde (Neutral/Dovish), Fed Chair Powell (Neutral), BoE Governor Bailey (Neutral), and BoJ Governor Ueda (Dove) partake in a panel at the Sintra forum at 14:30 BST / 09:30 EDT.
Courtesy of Newsquawk, here is context ahead of today’s panel.
Fed: Given Fed Chair Powell spoke at the Humphrey Hawkins testimonies last week, and the FOMC the week before that, it is unlikely Fed Chair Powell will have anything fresh to say. However, data since has been strong (albeit not primary data like inflation or employment), particularly housing data, consumer confidence and the durable goods reports on Tuesday, which could give the Fed Chair confidence in the current dot plots for two more 25bp hikes, despite the market only pricing in one more. Powell will likely tow the familiar line that future policy decisions depend on the data, and with NFP & CPI on July 7th and 12th, respectively, ahead of the July 26th meeting, it is unlikely Powell will make firm commitments ahead of July, but he did note the July meeting was a live one at the last FOMC and markets look for a 75% probability of a 25bp hike after the “skip” in June.
ECB: Lagarde has also spoken extensively in recent days and there have been several ECB source reports, and all imply a July rate hike from the ECB is a done deal, while the odds of another hike in September are also increasing. The latest source reporting this morning noted that some ECB officials are considering a faster reduction of its bond portfolio, noting active sales of securities from the APP could be the logical next step after TLTRO loans have been fully repaid at the end of 2024, however, some were more opposed to the idea amid concerns APP sales would lead to big losses at some Eurozone central banks. Therefore it will be interesting to see if Lagarde touches on this.
BoE: The BoE last week hiked by a surprising 50bps following a hot inflation report the day before with a hawkish split, where 7 of the MPC voted for 50bps. but the usual doves Dhingra and Tenreyro (departing) opted for an unchanged decision. Into the release, market pricing was a near coin flip between either a 25 or 50bps hike, but the consensus (taken pre-CPI) was for a 25bp hike. The decision saw analysts ramp up future rate hike expectations for the peak rate, and the latest Reuters poll is for the BoE to see a peak rate of 5.5% in September, with a 25bp hike in both August and September. However, markets are pricing a peak rate of 6.0% in December – commentary from Bailey on guidance will be key, but he will likely take a data-dependent approach, stressing the need to bring inflation down and repeat BoE guidance that they are prepared to do more if necessary.
BoJ: With the BoJ maintaining its ultra-loose policy, and the Fed signalling two more rate hikes, alongside a recent US equity rally, the Yen has weakened to “intervention territory” and has prompted jaw-boning from top Japanese officials about the one-sided move in the Yen. The latest was Finance Minister Suzuki noting they will respond appropriately to excessive FX moves if necessary, but like others, did not comment on specific FX levels. At the latest BoJ meeting, policy settings were unchanged as expected, disappointing outside hawkish calls for a tweak to its YCC. while Board Member Adachi noted if the bond market function remains in the current state, the chance of tweaking YCC in July is low. Ueda noted after the BoJ that more time is needed for the bank to meet its 2% inflation target and that they do need to pay attention to financial and FX markets – so we will be attentive to any remarks from Ueda on FX today. Ueda also noted after the BoJ that responding to an inflation undershoot after a premature rate hike is more difficult than responding to an overshoot, but it is possible a large shift in the price view could result in a policy change, and that the risk of an excessive inflation overshoot with cautious policy response is not zero, but there is also a risk of inflation undershoot with hasty monetary normalization.
Watch the panel live below:
Tyler Durden
Wed, 06/28/2023 – 09:25
