EuroZone Q2 CPI, GDP, and Chances the Euro Can Resume the Trend?
The Euro could get jostled around a bit this week with a series of very influential data that will jostle for pole position to drive the shared currency. Chief among them is the release of flash CPI figures for July. But, as usual, the main data point will be preceded by the numbers from major economies, which could get the market to react ahead of time.
All of this happens in the backdrop of the two key trade partners for the Euro having their monetary policy meetings, which could further jostle around the currency. The Fed is largely expected to hold rates, but convey that there will be a cut at the next meeting. That could leave the Euro comparatively better off against the dollar. Similarly, there is now a majority expecting the BOE to cut, which could also support the Euro in comparison. The BOJ will also meet, with rumors that it could hike rates, which could have a marginal arbitrage effect on the Euro as well. But all of that can be thrown into disarray if any of the major EuroZone data points fail to match expectations.
The Growth Problem
Tomorrow is the release of Eurozone Q2 GDP flash figures, with expectations that it will continue to show anemic growth. With the European economy unable to take off, there will be increased pressure on the ECB to move towards easing. That could leave the central bank more willing to tolerate slightly higher inflation, if that means the economy could take off. After all, the ECB had been dealing with the reverse problem for years: Too little inflation, which is seen as also weighing on economic growth.
First up is French Q2 GDP which is expected to see a quarterly declaration to 0.1% growth from 0.2% prior. But investors might look past it, considering the ongoing Olympics are expected to generate a boost in economic activity. More focus will likely be on Germany a couple of hours later, where Q2 GDP is also expected to decelerate to a quarterly rate of 0.1% from 0.2% prior. However, that’s expected to be enough to pull the annual growth rate back barely into positive to 0.1% from -0.2% in the first quarter. If those forecasts are met, then the market might have renewed confidence that the whole Eurozone Q2 GDP growth rate will slow down a bit to 0.2% from 0.3%, but with the bad first quarter of last year rolling off, the annual rate could pop up to 0.7% from 0.3%.
Prices Keep On Rising
Around the same time as the GDP figures come out, we’ll get the first look at German July CPI. The expectation of the ECB to move to another cut at the next meeting is based on the impression that price growth will continue to slow through the rest of the year. A flat reading would likely be in line with an expected decline, but if inflation moves up a bit, markets could get worried that there might be another pause in rate cuts.
German July CPI is forecast to come in at 0.2%, up from 0.1% in June. But that’s seen keeping the annualized rate at 2.2%, and on track to reach the ECB’s target. We have to wait until Wednesday to get the data for the whole of the EuroZone, which is expected to see a monthly deflationary reading of -0.3% compared to 0.2% in June. The annual rate is forecast to come down to 2.3% from 2.5% prior.