This week
This week has been a quiet one in terms of economic data releases. On COVID-19, global cases have reached new record highs, as India is hit hard currently by the Indian B.1.617 variant. Things are looking better in Europe, where new cases are declining (although the picture is more mixed when looking at individual countries). There are some concerns that the vaccines are not effective against the Indian B.1.617 variant but we think it is too early to cry wolf, see COVID-19 Update: Doses for 70% of EU adult population available by mid-July, too early to cry wolf over Indian variant, 22 April.
This week’s ECB meeting was not a “significant meeting” with no new signals leaving many decisions for the June meeting. Markets did not react significantly to the meeting. We see the current monetary policy stance as paving the way for ECB to reverse its bond buying to around EUR60bn/month during the summer period, see Flash ECB review: Not a “significant” meeting, 22 April.
In Germany, CDU/CSU decided that Armin Laschet will be the conservative Chancellor candidate in the upcoming German election in September.
Next week
In the US, we do not have many exciting data releases next week. Just like it was the case for ECB this week, we do not expect next week’s FOMC meeting to be an exciting one. We expect the Fed to keep monetary policy and policy signals unchanged. We do, however, expect the Fed to turn more hawkish soon, as strong economic data start to arrive, supported by fast vaccinations. See our Fed Monitor: Preview – Too early for the outcome-based Fed to change rhetoric, 21 April. Next week, President Joe Biden is expected to release the details of his second economic reform package focused on social spending on e.g. health care and education financed by higher taxes on wealthy Americans (we discussed the first package focused on infrastructure in Research US: Biden’s economic agenda means upside potential for growth in 2022-24, 9 April). We now know that higher capital gains taxes are in the cards, which, however, was not a big surprise.
In the euro area, the Italy’s Prime Minister Mario Draghi unveils details on the EUR221bn recovery package. Other EU countries are also likely to publish similar plans soon, as the submission deadline for recovery plans to the EU Commission approaches (30 April). We expect HICP inflation in April increased to 1.6% y/y driven by higher energy prices, while core inflation likely stayed at 1.0% y/y. We expect euro area GDP declined by 0.5% in Q1, as restrictions and lockdowns continued weighing on services and private consumption despite the manufacturing boom.
In Japan, we expect no policy changes from the Bank of Japan next week following last months’ policy tweaks in the wake of their review. We will get fresh forecasts for inflation, where we can expect 2023 to mark another year of not reaching the 2% inflation target, the last in governor Kuroda’s current five-year tenure.
