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[Quick Facts]

1. Nagel expects a rate hike in July.

2. U.S. recession expectations rise.

3. Russia will cut oil exports in August as planned.

4. Yellen says the U.S. labor market is on a good path.

5. ECB July interest rate decision outlook.

[News Details]

Nagel expects a rate hike in July

Joachim Nagel, Governing Council member of the European Central Bank, said in a speech on Monday that he expects another 25 basis point rate hike at the July meeting, and for the September meeting, it will be based on data. Underlying inflation is very sticky, he added. While markets and economists see the ECB hiking rates both next week and in September, central bank officials are unclear about the path beyond the summer. There is no risk of excessive policy tightening. A hard landing in Europe is unlikely as rates rise. It is too early to declare victory in the fight against inflation.

U.S. recession expectations rise

Expectations of a recession in the U.S. have risen again as inflation in the country continues to hover at a high level and the negative effects of interest rate hikes have accelerated to be felt. Although the Federal Reserve still insisted that the economy is expected to grow slowly, growth is stagnant or falling in more than half of the region, activity in the transport sector slowed, and the banking sector is in a downturn, which has reflected a gloomy outlook for U.S. economic growth. The latest U.S. inflation data showed a significant pullback, causing market institutions to be in high spirits. However, differences among parties on the inflation outlook did not subside but further increased.

Russia will cut oil exports in August as planned

Russia is on track to plan to reduce oil exports by 500,000 barrels per day (bpd) in August, according to Russia's Kommersant. Russia's offshore oil exports may fall to 2.9-3 million bpd in August, mainly due to a reduction in exports from Russia's Baltic ports. The cuts are achieved by adjusting the third-quarter export schedule of the state-owned pipeline operator Transneft, two sources said. Russia announced plans to cut production earlier this month, hoping to join Saudi Arabia in boosting global oil prices.

Yellen says the U.S. labor market is on a good path

The U.S. labor market has been strong, and in fact, its strong performance has encouraged more people of optimal working age to enter the labor market, helping ease the heat labor market, U.S. Treasury Secretary Janet Yellen said in a speech on Monday. Overall, the slower growth (in employment) is normal, but it has also led to a reduction in businesses' willingness to hire. While there are still a lot of open jobs, wage growth is moderating and inflation is weakening. So I think we're on a good path in the U.S.

ECB July interest rate decision outlook

HSBC economists Simon Wells and Fabio Balboni provide an outlook for the ECB's July rate decision.

The ECB is not expected to pause rate hikes at this meeting but to raise rates by 25 basis points in July. Despite the softening of euro area economic activity data since the June meeting and the unexpected downward movement of inflation, the labor market remains tight, with high unit labor costs rising further.

The focus of the July meeting will be whether the ECB signals another rate hike in September or shifts to an entirely data-dependent model.

The ECB is expected to maintain its bias towards further rate hikes (the ECB expected in June that inflation will remain above target in 2025), but instead of giving a clear indication of future hikes, as it did in June, it will re-emphasize "data dependence."

The debate on whether to accelerate balance sheet shrinking could become a bargaining chip for hawks in July.

Doves may be more inclined to support another rate hike rather than actively selling bonds purchased under the asset purchase programme (APP) or stopping the pandemic emergency purchase programme (PEPP) reinvestment early.

What is more likely is to stop PEPP reinvestment before the current deadline (end of 2024). PEPP reinvestment is expected to stop in the second half of 2024, but it is unlikely that the ECB will make this decision in July, but more likely later this year or early next year.

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