Institutions: during periods of high uncertainty, the ECB will maintain interest rates in July

ON 18 JULY, BCF INDICATED THAT POLICY ADJUSTMENTS NEED NOT GO STRAIGHT, ESPECIALLY DURING PERIODS OF HIGH UNCERTAINTY. THIS VIEW SEEMS TO BE SHAPING THE MARKET’S PRICING OF THE ECB’S INTEREST-RATE RESOLUTION NEXT THURSDAY, WHICH EXPECTS THE ECB TO MAINTAIN THE DEPOSIT RATE AT 2.25 PER CENT AFTER THE 25 BASIS POINTS RAISED IN JUNE. MARKETS ARE ALSO GENERALLY EXPECTED TO REMAIN AT PEACE. THE MOST RECENT IMPORTANT STATEMENT BY ECB PRESIDENT LAGARDE WAS MADE ON 1 JULY, WHEN SHE STATED: “I BELIEVE THAT THE RISK OF UPWARD INFLATION AND DOWNWARD GROWTH THAT WE FACE IS LIKELY TO BE MORE BALANCED THAN IT WAS A FEW WEEKS AGO, BECAUSE CHANGE IS OCCURRING RAPIDLY.” SINCE THEN, THE CONFLICT BETWEEN THE UNITED STATES AND IRAN HAS RESUMED. WTI AND BRENT CRUDE OIL BOTH INCREASED BY ABOUT $12 PER BARREL. TO A CERTAIN EXTENT, THE JUNE INFLATION REPORT MAY HAVE ALLOWED THE ECB MORE TIME TO ASSESS THE SITUATION, AFTER ALL, WITH THE PRINCIPLE OF “DATA DEPENDENCY.” THE OVERALL CPI RATIO IN THE EURO AREA FELL BY 0.1 PER CENT, FROM 2.6 PER CENT TO 2.4 PER CENT IN THE SAME YEAR (THE HIGHEST SINCE LAST APRIL). DESPITE THIS, MARKET SENTIMENT INDICATORS CLEARLY SHOW THAT THE HAWKS CONTINUE TO DOMINATE OVERALL. KIM XIAN