ON DECK FOR FRIDAY, JULY 26
![ON DECK FOR FRIDAY, JULY 26](/content/experience-fragments/scotiabank/global_economics/en/daily_points/july_2024/2024-07-26/master/_jcr_content/root/image.img.png/1721992768191.png)
KEY POINTS:
- Markets ending the week in a calmer place — so far
- Tokyo CPI takes some wind out of the yen, calms down carry trade reversal
- How low will US core PCE land?
- US consumption and incomes expected to post solid growth
- ECB inflation expectations stabilize
- Russian central bank hikes 200bps as inflation rises
Tokyo CPI came and went in somewhat dovish fashion and the focus now shifts to how US inflation data may inform Fed expectations. Markets are in a somewhat better place so far this morning with a positive mood in equities, little change in sovereign debt yields and calmer FX markets with the safe havens like the USD, CHF and yen on softer footings.
Tokyo core CPI ex-f&e was markedly softer in July compared to the recent trend. It landed at 0% m/m SA which helped to drive the y/y rate down to 1.5% from 1.8% previously (chart 1). This is the last inflation reading ahead of next week’s Bank of Japan meeting. That took some steam out of the yen overnight, left pricing for next week’s BoJ meeting at about 7bps of a 10bps hike, and offered no incremental impact on the carry trade.
![Chart 1: Tokyo Core CPI](/content/experience-fragments/scotiabank/global_economics/en/daily_points/july_2024/2024-07-26/master/_jcr_content/root/image_111655177.img.png/1721992871074.png)
The ECB’s measures of inflation expectations were unchanged in the June readings and remain somewhat above the ECB’s inflation target (chart 2).
![Chart 2: ECB Measure of Inflation Expectations](/content/experience-fragments/scotiabank/global_economics/en/daily_points/july_2024/2024-07-26/master/_jcr_content/root/image_1091929614.img.png/1721992892922.png)
The Fed’s preferred core PCE reading lands this morning (8:30amET). It’s a close call with very similar numbers of forecasters in the 0.1% and 0.2% m/m SA camps and we shouldn’t discount the possibility of an even weaker print. Chart 3 shows core PCE tends to undershoot core CPI that itself was just +0.06% m/m SA. Yesterday morning’s Q2 upside surprise of 2.9% q/q SAAR (2.7% consensus) was probably driven by revisions to at least April and May while it left Q1 unchanged, but we can’t tell how until we get the monthly break down this morning and therefore we cannot tell how the jumping off point for June’s estimate might have been altered.
![Chart 3: US Core CPI & Core PCE](/content/experience-fragments/scotiabank/global_economics/en/daily_points/july_2024/2024-07-26/master/_jcr_content/root/image_1964326505.img.png/1721992906682.png)
Also watch for what will probably be a solid US consumer spending print.
Russia’s central bank resurrected mega-hikes as inflation risk intensifies. It raised the key rate by 200bps to 18% and the hawkish bias indicated further tightening lies ahead. The ruble depreciated in the aftermath. Reagan would've doubled down on Russia imo as Russia is running out of weaponry and under intensifying macroeconomic pressures caused by Putin’s war. Instead, Trump wants to help out his buddy.
![Rates Table](/content/experience-fragments/scotiabank/global_economics/en/daily_points/july_2024/2024-07-26/master/_jcr_content/root/image_1614641814.img.png/1721992812358.png)
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