Article / 21 July 2016 at 5:04 GMT

3 Numbers: ECB expected to leave monetary policy unchanged

editor/analyst /
United States
  • No changes in policy are expected from the European Central Bank 
  • The Philly Fed’s manufacturing index is on track to tick higher in July 
  • Is the Chicago Fed National Activity Index ready to bounce?

By James Picerno

Thursday’s a busy day of economic news, including the European Central Bank’s policy announcement and press conference. Later, the Philly Fed’s monthly update of its regional manufacturing data will offer another early clue on the state of macro for July. We’ll also see a big-picture update for US economic activity via the June report for the Chicago Fed National Activity Index.

 The European Central Bank is expected to adopt a wait-and-see posture today. Photo: iStock

Eurozone: ECB Announcement (1145 GMT) and Press Conference (1230 GMT) Brexit blowback may be lurking, but the European Central Bank (ECB) is expected to adopt a wait-and-see posture today.’s consensus forecast calls for no change in the ECB’s policy rate, which is currently at zero. “Gauging the ‘Brexit’ impact will require more time and the September meeting would appear a more logical candidate,” advised a Rabobank strategist in a note.

Meantime, recent economic data hints at the possibility of weaker growth, which the euro area can hardly afford.’s second-quarter projection for GDP growth dipped below 0.3% in last week’s estimate for the quarter-over-quarter comparison. The third quarter's expected gain is higher, but Friday’s update for this number also shows the pace slipping to 0.35%. The main takeaway: GDP updates are on track to fall well below Q1’s 0.5% advance.

The reasoning for leaving policy unchanged is that there’s precious little hard data available that reflects economic activity covering the weeks since last month’s Brexit vote. Policy is already in high stimulus mode, or so the ECB President, Mario Draghi, will probably point out in today’s press conference. It’s unclear if that will suffice to offset any Brexit-related fallout. But for the moment, the ECB is likely to reason that it’s too soon for a change in policy.

US: Philadelphia Fed Manufacturing Index (1230 GMT) The initial look at manufacturing activity for July suggests that the June bounce may already be fading at the start of the third quarter.

Last week’s update of the New York Fed’s manufacturing index sagged in July after posting a solid gain in the previous month. The June release inspired hope that the sector’s slump was finally ending. That’s also the message in the national manufacturing data via the Institute for Supply Management, which reported that its sentiment benchmark climbed to a 16-month high in June.

“Manufacturing output has been close to zero for the past year, and hopefully the rise in the [ISM] index is a sign that the pace of deterioration in some manufacturing industries has stabilised,” an economist at HSBC Securities USA told Bloomberg last week.

But the preliminary numbers for July via the New York release leave room for doubt. It’s still early for profiling this month’s output and so today’s regional report from the Philly Fed will offer more context. The good news is that economists are looking for a relatively upbeat set of numbers. The headline index for the Philly Fed’s benchmark is project to tick up to 5.0 from June’s 4.7 reading. If the estimate holds, the news will offer a mildly positive contrast with last week’s worrisome New York Fed release.

US: Chicago Fed National Activity Index (1230 GMT) The three-month moving average for this broad-minded index of US economic activity (CFNAI-MA3) painted a worrisome picture of the macro trend in the May report, when the index slumped to a four-year low. Although the negative 0.36 reading is still comfortably above the tipping point that the Chicago Fed says marks the start of recession, the persistent slide this year in CFNAI-MA3 raises the possibility that the macro trend is headed for trouble in this year’s second half.

But in the subsequent weeks since the last update, several June reports reveal that output has revived. Notably, employment surged last month after a weak gain in May. Retail sales also perked up in June. The implication: the CFNAI-MA3’s stumble in May appears headed for a rebound.

Perhaps then it’s not surprising that my econometric modeling also expects a firmer trend via today’s June update of CFNAI-MA3. The index is on track to rise to negative 0.17, based on the average estimate of several projections. Predictions are noisy, of course, but given what we know about June figures so far (for details, see my analysis here), it would be surprising if today’s monthly report from the Chicago Fed doesn’t show a modestly stronger reading vs. May.

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– Edited by Susan McDonald

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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