As was widely expected the ECB elected to keep the deposit facility rate unchanged at 3.75%. The committee highlighted that there was no pre-committed path for interest rates and that each rate decision would be data dependent. The ECB next meets in September, with Christine Lagarde suggesting that the outcome of that meeting remained “wide open”. Markets are currently pricing in an 80% chance of a rate cut in September.
Egypt's central bank also held rates steady yesterday, leaving the benchmark overnight deposit rate at 27.25%. Another hold by the CBE had also been anticipated as while inflation has been slowing since the official devaluation of the pound in March eradicated the parallel exchange rate, real interest rates are still negative with headline CPI at 27.5% in June. With subsidy cuts being implemented, the CBE will want to be sure of the disinflationary path before implementing its first rate cuts. We forecast a cumulative 200bps of cuts in the fourth quarter.
There were some signs of a cooling in the UK labour market, with average weekly earnings (excluding bonuses) growing at their slowest pace in almost two years, rising 5.7% y/y in the three months to May, down from 6% in April. Private sector regular pay growth also ticked down to 5.6% 3m/YoY in May from 5.9% previously. The unemployment rate remained unchanged at 4.4% in the three months to May.
There was also evidence a moderation in the US labour market, with initial jobless claims rising sharply in the week ending 13 July, jumping 20k to 243k. Continuing claims for unemployment benefits also rose by 20k to 1.87m in the week ending 6 July, its highest level since November 2021, suggesting that it is taking unemployed workers longer to find a new role.
Japanese consumer prices excluding fresh food rose to 2.6% y/y in June, up marginally from 2.5% in May. The rise was a little lower than the 2.7% gain that had been expected by markets but will nonetheless add to the case for the Bank of Japan to hike rates when they meet at the end of the month.
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