Major Highlights:

  • RBA
  • BoE
  • US Data
  • Earnings Season

Central banks around the world adopted cautious tones in the past week, as economic data showed signs of slowing growth.

The Federal Reserve and the European Central Bank both held their policy meetings, and neither central bank signaled any major changes to their monetary policy stance.

Flash PMIs from Europe and the US showed that growth is slowing in both regions.
In the Eurozone, growth is being held back by stagnant employment and a widening gap between manufacturing and services activities. In the US, growth is being supported by strong consumer spending, but businesses are starting to feel the effects of rising costs.

The disparity in growth data between the US and the Eurozone is reflected in the EURUSD exchange rate, which has fallen below 1.10.

Expectations of a 50bp rate increase by the Bank of England have also been quashed, as other central banks have adopted cautious tones.

In the upcoming week, Chinese PMIs, Eurozone GDP data, and US payrolls for July will be closely watched for clues about the future path of monetary policy.

The Bank of England and the Reserve Bank of Australia are also both expected to make announcements about their monetary policy stance.

Overall, the past week has seen a shift towards caution among central banks, as they grapple with the challenges of slowing growth and rising inflation.

It remains to be seen how long this cautious stance will last, but it is clear that central banks are starting to take a more measured approach to monetary policy.


The RBA meeting has divided opinion, with economists and money markets differing on the likelihood of a rate hike. Reuters estimates show that 20 out of 36 economists are expecting a hike, while money markets see a 70% chance that the bank leaves rates unchanged.

This is a significant difference, and it is worth paying attention to when there is such a divergence between expert opinion.

In the last meeting, the RBA kept rates steady, but it still maintained a hawkish stance, with a focus on returning inflation to target.

The minutes from the meeting showed that the Board weighed both holding rates steady and a 25bps hike, but ultimately decided that there was a more compelling case for the former. The prospect of further tightening was also considered, with a decision to be revisited in August.

Markets were close to a 50/50 probability between a hike and a hold for the majority of last week. However, the softer Q2 CPI data and the slowest quarterly retail sales reading since September 2021 seem to have tipped the probability towards a hold.

Even so, another hike is not out of the question.
The current level of inflation, while moving in the right direction, is still miles above the bank’s target. Additionally, the recent appointment of Deputy Governor Bullock to replace Lowe in mid-September could also play a role.

This leaves just two meetings under Lowe’s tenure, and it is possible that the central bank may want to wait until the new Governor assumes office before making any further changes to rates.

Ultimately, the decision of whether or not to hike rates at the next meeting will be a close one. The RBA will need to weigh the risks of inflation staying too high against the risks of a rate hike slowing economic growth. It is a difficult balancing act, and there is no easy answer.


The Bank of England is expected to raise interest rates by 25 basis points at its meeting this week, following a 50 basis point hike in June. This is the consensus view among economists, who are also expecting the Bank to signal that it will continue to raise rates in the coming months.

The reason for the more cautious approach is that recent data has shown some signs of improvement in the inflation outlook. The June CPI report showed that inflation fell to 7.9% in annual terms, from 8.7% in May. This was in line with the Bank’s May Monetary Policy Report forecast.

Core inflation also showed some signs of slowing, falling to 6.9% in annual terms, from 7.1% in May. The key services metric fell to 7.2% from 7.4%.

However, there were some negative signs in the data too. The unemployment rate rose to 4% from 3.8%, and M/M GDP contracted by 0.1% in May.

The Bank will be interested in how to manage expectations for interest rates beyond August. The MPR forecasts could raise questions about whether further rate hikes are necessary. However, the MPC has been less reliant on its forecasts in recent months, given the unexpected increases in inflation data.

The MPC is expected to vote 8-1 to raise rates by 25 basis points, with Dhingra expected to dissent. However, ING points out that there is a potential for a three-way split, with some members preferring to maintain a 50 basis point hike.

Beyond August, the terminal rate is anticipated to be slightly above 5.8%, indicating an additional 50 basis points of tightening post-next week’s meeting.

US Data

This week, we will get a ton of important US data points, which could create tradable short-term volatility. It is worth keeping these on the radar.

ISM Manufacturing and Services PMIs

The ISM manufacturing index is expected to show a marginal increase, though still below 50.0, with experts predicting a rise to 46.5 from 46.0. S&P Global’s PMI data suggests a slight recovery in manufacturing conditions in July, primarily due to stable production and fewer drops in new orders.

However, manufacturers trimmed input purchases and inventories in response to weak demand, resulting in better supplier delivery times. Efforts to cut costs were clear in the face of subdued local and international demand.


Before heading into Friday’s NFP, we will also get a few important labor market indicators. None of these are expected to create as much volatility as Friday’s NFP, but markets have been paying more and more attention to these, so they are worth watching.


The consensus anticipates the addition of 184k nonfarm payrolls to the US economy in July, with a slowdown in the growth rate of average hourly earnings to +0.3% M/M from June’s +0.4%.

The unemployment rate is projected to hold steady at 3.6%.
Ahead of July’s data, indicators of labor market strength have varied: hiring intentions recorded in the NFIB’s survey were the lowest since early 2020, Indeed’s job postings have seen a downward trend, the S&P Global PMI data indicated a dip in services sector employment for the month, and some sectors might have experienced a hiring decrease due to warmer weather conditions.

However, regional Fed surveys have demonstrated more positive signs, and initial jobless claims have been declining after a recent increase.

Moody’s Analytics expects that the tight US labor market will show signs of loosening, following June’s job creation slowdown. It also anticipates the JOLTs data for June to reveal a similar trend, with job openings dropping from May’s 9.8 million.

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