SocGen: 4 Major Central Banks Could Make Big Moves This Week

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Weak global economic data and declining oil prices are likely to push central banks to act this coming week, according to Societe Generale’s Michala Marcussen and her team.The coming week will see key manufacturing reports from some of the largest global economies. China and the major euro area countries are expected to report declining PMI numbers, which reflected slowing manufacturing sectors.

Moreover, the U.S. June jobs report, which will be released on Friday, is expected to be mediocre at best.

In this environment here’s what SocGen analysts expect out of four central banks next week:

Reserve Bank of Australia (July 3): ‘RBA has done enough for now’

Monetary policy is likely to be eased further in Australia. After cuts in May and June, there is a 20 per cent chance of 25 basis points (bps) cut in July. It’s more likely that the next rate cut will be at the August meeting when the RBA has its new forecasts for the economy. 

Given the 1.3 per cent quarter-over-quarter (QoQ) growth in GDP driven by domestic demand, there is more of an upside risk to the RBA’s 3 per cent GDP forecast for 2012. “In short, we remain of the view that the market is too aggressive in pricing-in rate cuts in Australia.”

Sweden’s Sveriges Riksbank (July 4): ‘Off on the summer break with a rate cut’

The executive board of Sweden’s central bank is expected to cut its repo rate by 25 bps to 1.25 per cent. This call is based on low inflation, lower energy prices and weak export demand. The 2013 GDP growth forecast could be lowered from 1.9 per cent. But there should be a cut in headline and core inflation rates for 2012. 

Bank of England (July 5) ‘Asset purchase target to be increased to £375 billion’

While the minutes of the June Monetary Policy Committee (MPC) meeting show the committee voting 5-4 for unchanged policy. BoE governor Mervyn King was one of the four voting for more QE. This increases the likelihood that the asset purchase target will be increased by £50 billion at the meeting. 

The bank rate is expected to be held steady at 0.5 per cent. 

European Central Bank (July 5): ‘ECB to finally drop opposition to zero interest rates’

ECB president Mario Draghi left room for a rate cut by revealing at last month’s press conference, that conditions that support a rate cut are now in place. Moreover, at the ECB watchers conference in June Draghi argued that the economic outlook had deteriorated and that there was no inflation risk.

With this in mind, the ECB is finally expected cut its deposit rate to zero and the refinancing rate by 50 bos to 0.5 per cent. Another LTRO or reactivation of the SMP are not likely. “The ECB risks leaving the impression that it is merely fiddling at the margins.”

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