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Steady hands

  • This week, the ECB and the Peoples Bank of China communications confirm core central banks’ commitment to remain accomodative.

  • The Fed is also expected to keep a steady hand next week as it initiates a tapering discussion amid signs of more pronounced inflation readings. Such signs include a second consecutive upside surprise for US CPI inflation in May, continuing recent evidence of global supply-driven cost pressures.

  • Markets seem to agree that these inflation pressures are likely to be transitory, with evidence that growth is slowing in China and hints that it has peaked in the US.

  • In the United States, the May CPI estimates show another month of robust gains, putting the FOMC on the hot seat as they wait for cost-push pressures from supply bottlenecks to play out.

  • In the Euro area, the ECB has maintained a very easy monetary policy stance for the third quarter, protecting a nascent and still highly uncertain recovery.

  • In the UK, with April GDP at 2.3% month over month, we now forecast 6.7% growth in 2021 and 4.7% growth in 2022, though we maintain our overall cautious stance.

  • In Japan, we expect GDP to contract in the second quarter, but to bounce back in the third quarter, as mobility and consumption recover with the vaccine rollout and easing of supply constraints.

  • In China, the Barclays alternative credit impulse deepened into contraction territory in May. We expect the credit impulse to decline further in the third quarter and bottom in October.

  • In Emerging Asia, receding COVID infections have allowed governments in Singapore and India to begin a phased easing of mobility restrictions.

  • In Emerging Europe, the Russia Central Bank’s communication was more hawkish than expected. We now expect one more 50 basis point rate hike in July, and then for rates to remain stable at 6% until end of 2022.

  • In Latin America, the region is benefiting from higher tax collection, in line with the rise in commodity prices and the economic recovery. But in some cases, spending will be growing faster.

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