On the political front, the flow of information remains very intense. On the one hand, there is still the chaotic and slightly surreal situation in France, where political negotiations to form a real majority are guiding media life. This is not scaring the markets too much, but the backlash could be violent. On the other hand, following the assassination attempt on Donald Trump on 13 July, the US presidential campaign is in turmoil, while president Joe Biden has been temporarily sidelined by covid. Finally, let's not forget the Third Plenum of the Chinese Communist Party. This important meeting took place this week. Although no short-term measures seem to have emerged from it, it provided an opportunity to take stock of China's long-term ambitions, which are clearly focused on innovation, sustainable development and consumption.
On the economic front, all eyes were obviously on Frankfurt and the monetary policy meeting of the European Central Bank (ECB). Two things are worth noting: firstly, unsurprisingly, the ECB left rates unchanged, and secondly, the ECB has for the time being abandoned all forward guidance.
It comes as no surprise that the ECB has left its key interest rates unchanged. There simply hasn't been much important data published since the ECB's June meeting. If anything, the most recent data points to weaker growth and lower headline inflation, but services inflation is still not going far enough in the right direction.
ECB will have more to say in September
For the next few months, it is reasonable to assume that the ECB is not bluffing: there is no pre-established plan for the September meeting. Quite rightly, it is probably impossible for the ECB to give a clear indication of its intentions (known as forward guidance) in the second half of the year. It should be remembered that we are not in a typical rate-cutting cycle in the eurozone. In the past, easing cycles have always been triggered by recessions or crises. Fortunately, this is not the case at present. As a result, further rate cuts will not be on autopilot. In fact, it is clear that the ECB will have to strike a balance between potential damage to its reputation and growing concerns about over-optimistic inflation forecasts.
On the one hand, the ECB has no interest in making the June rate cut look like a policy mistake over the next few weeks, which would be a strong non-economic argument for a further rate cut at the September meeting. On the other hand, weakening economic momentum, persistently high domestic inflation and the risk of high wage growth are not an easy combination for the ECB to deal with.
As a result, a rate cut in September is far from a foregone conclusion, especially as the US central bank's intentions could also change in the meantime.
Read the original French version of this guest column here
