THINK Ahead: Three lions, three cuts?

The Euro 2024 championships are nearly over. For some, they already are (sorry, Dutch colleagues). And the economic football analogies that nobody asked for? Don’t worry those will be gone soon too.

We’ve scored our fair share: Half-time team talks? Our latest ING monthly is full of them. Picking champions? Our team’s latest FX forecast update has you covered. Comparing the German economy to the national team’s early exit? Yep, we’ve done that one too. Andrew Bailey’s groin strain? Ok, don’t ask.

Hungry for more? Well, how about a team that’s scored an early goal and is sitting back on its defence, is proving pretty boring to watch, and desperately needs a change in tactics?

Nope, not England this time. I’m talking about the European Central Bank. They line up in Frankfurt next week against a backdrop of sticky domestic inflation and mixed economic activity data. Keep an eye on next week’s eurozone bank lending survey, which Bert Colijn reckons will show only a modest recovery in credit conditions.

Carsten isn’t expecting much action from the ECB this time, not least on the bank's forward guidance. The next match in September is more important. And the ECB has scored its fair share of own goals over the past couple of seasons, pre-committing to action that has subsequently been only reluctantly delivered. June’s rate cut is just the latest example.

Still, the ECB does seem more confident in its future inflation forecasts. We reckon a September rate cut remains on track, but don’t expect team captain Christine to tell us much more about that next week.

Here in London, it’s not just the England football team that will be hoping to avoid bitter disappointment. Three weeks out from the Bank of England’s next meeting and Governor Bailey will be hoping next week’s inflation data doesn’t snatch defeat from the jaws of victory. Despite lukewarm comments from the Bank’s Chief Economist this week, we reckon an August rate cut is still odds-on if next week’s services CPI figures don’t surprise to the upside.

Let's hope it's a similar story to the US, where the inflation data finally seems to have taken the Fed over the line, at least in investors' minds. Core inflation has slowed considerably over the past couple of months. Just take a look at our chart of the week showing the breakdown of month-on-month changes in prices. And crucially, this slowdown is happening in the service sectors that the Fed’s Jerome Powell is most focused on.

That’s all but ticked one of the three boxes James Knightley thinks needs checking off before the easing cycle can begin. The other two? We're already starting to see a further rise in the unemployment rate. And we need to see a slowdown in consumer spending. James reckons retail sales figures next week could disappoint.

So when it comes to that all-important September Fed meeting, to misquote a well-known England football song... Rate cuts are coming Jerome! 

You’ll be pleased to hear I’m on holiday next week. But then there's the Olympics...

US (James Knightley)

• Powell speech (Mon): At his recent testimony to Congress Fed Chair Jerome Powell signalled that inflation is no longer the only concern of officials with an acknowledgement of a cooling in the economy. Consequently, while “reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation” officials also recognised that “reducing policy restraint too late or too little could unduly weaken economic activity and employment”. Markets are currently pricing two rate cuts this year, most probably starting in September, but ultimately, it will be down to the data flow that determines what will happen, and we expect the Fed to cut rates 25bp on three occasions.
• Beige Book (Wed): Powell is speaking again this week and we will also have the Federal Reserve Beige Book – an anecdotal survey on the state of the US economy – which officials place a lot of weight on. Data wise it will be the retail sales and industrial production numbers that will be of most interest. Lower gasoline prices and falling auto sales point to an outright monthly decline in retail sales given this is a dollar value figure. Weaker consumer confidence also suggests downside risks. As for industrial production, the weakness in the ISM report and regional manufacturing surveys suggest a much more subdued performance in June after surprise strength in May.

Eurozone (Bert Colijn)

• Bank Lending Survey (Tue): The ECB bank lending survey is due out next Tuesday and will shed some light on how rate hikes are still impacting the economy. Expectations about loan demand have been bottoming out in recent quarters and the same holds good for credit standards. This indicates that the worst of the impact of the hike cycle on the lending channel may be behind us. Then again, expect only a very modest recovery if the recent trend continues. For the ECB, this release is unlikely to move the needle on coming rate cuts too much but it will pay close attention to see any big deviations from trend materialise.

United Kingdom (James Smith)

• Inflation (Wed): Headline CPI may have dipped fractionally below 2% in June, but this probably marks the bottom. Expect this to drift higher again in the second half of the year and sit between 2-2.5%. Services inflation is the bigger deal for the Bank of England and having proven stickier than expected of late, we expect some marginal progress here too. A lot of the recent upside surprise can be traced back to price hikes at the start of the financial year, which the Bank of England has acknowledged is probably more noise than signal.

Poland (Adam Antoniak)

• Inflation (Mon & Tue): Investors will seek confirmation that CPI stayed close to the NBP target in June (the flash estimate pointed to 2.6%) and that core inflation eased a bit (we see it down to 3.7% vs. 3.8% in May) in Tuesday’s NBP data release.
• Industrial output and PPI (Thu): We expect another soft reading from the domestic industrial sector (output down by 1.3% year-on-year in June), linked to weak external demand, but also because there was one working day less than in June 2023. Producers’ price deflation should ease a bit (-5.8%YoY vs. -7.0%YoY in May).
• Employment (Thu): The labour market situation is projected to be stable with 12% annual increases in the average wage, coupled with an ongoing decline in employment. Data should confirm the ongoing economic recovery, but the pace of improvement in the manufacturing sector remains disappointing.

Czech Republic (David Havrlant)

• Current account (Mon): The current account balance likely remained positive in May. However, demand issues from the main foreign trading partners will be noticeable, with export performance exceeding the import side by less than in previous months.

• PPI (Wed): The stronger Koruna and weaker Brent crude prices in May likely helped keep industrial price growth at bay in June. The mediocre industrial production of previous months also won't have acted as an accelerator for industrial prices. That said, the growing wage bill likely will keep some pressure on prices in industry.