BoE, ECB Day Fears of increasing military action along the Ukraine border fueled demand for gold after the US joined NATO and Poland in warning about Russia’s combat readiness on the Ukraine border and Russia banned the import of agricultural goods from countries that have imposed sanctions on it. The import ban follows a threat of Russia’s Prime Minister Dmitry Medvedev to restrict European flights to Asia over Siberia. The tit-for-tat sanctions, which will in some cases hurt the Russian economy as much as the Western economies they are aimed at, have caused RUB to weaken further. We expect increased capital flight to keep the currency under pressure. Other Eastern European currencies, such as PLN and HUF, may be dragged down as well if the escalation continues.
In Australia, the unemployment rate unexpectedly jumped to 6.4% in July, the highest since 2002, from 6.0% in June, missing forecasts of an unchanged reading. The Australian dollar plunged approximately 0.50% on the news, reflecting investors’ concern over the weak labor market and its likely impact on RBA policy. However, the Australian Bureau of Statistics said to be cautious about its survey, because of certain technical problems in statistical sampling. Given the problems it is very difficult to get a clear picture of employment and we will probably need the August report to have a better view. Nonetheless the news may keep AUD under pressure following the declining commodity prices.
Today: The highlights will be during the European day, where we have the Bank of England and the ECB holding their policy meetings. Once again, BOE is unlikely to change policy and the impact on the market, as usual, should be minimal. The minutes of the meeting however should make interesting reading when they are released on 20th of August, especially after the recent poor data added concerns over the UK’s economy recovery. Some analysts expect to see the first MPC member to dissent in this cycle and vote for a rate hike, yet the weak data recently has probably lessened the likelihood of this occurrence.
In the Eurozone, in spite of signs that the recovery is weakening further, we don’t expect any policy changes at their meeting since some of the key measures the ECB announced in June are yet to be implemented. Despite the rising concerns over the geopolitical risks in the euro-area and the persistent threat of deflation, the August meeting will probably pass unnoticed. As usual, ECB President Mario Draghi will hold a press conference after the rate decision, and it is likely to prove uneventful as no fresh policy measures are expected to be announced.
As for the indicators, German industrial production is expected to have rebounded on a mom basis. Given Wednesday’s unexpected drop in factory orders it will be questionable if the forecast is met.
Norwegian industrial production for June is also coming out.
From the US, we get the initial jobless claims for the week ended 2nd of August and the forecast is for the figure to increase marginally.
In Canada, building permits for June are forecast to have dropped 1.9% mom from +13.8% in May.
Besides ECB President Mario Draghi’s press conference, we don’t have any other speakers on Thursday.