July 23, 2021
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UK: retail gorges on failing normalisation

  • The mix of UK retail sales in Jun-21 made the outcome a disappointment, despite dull headlines. Food sales offset widespread declines in opposition to the desired unwinding of retail’s rotation. The failure to normalise threatens the recovery’s extent.
  • Rising infections are fuelling a broader surge in disrupted behaviours. Several hundred thousand people are legally required to isolate with guidance and school closures afflicting double that again. We still expect the recovery to disappoint in H2.

July 23, 2021

HEW: flash inflation for Jul-21

  • The ECB’s post-strategy review decision was the main event for us over the past week. Recognition of the renewed viral risks together with its efforts to follow through on new guidance means tapering is likely to be postponed from September to December, in our view (see ECB’s new broom throws up a dust cloud). Developments on the BoE side saw speeches by Ben Broadbent and Ian Haskel both rowing back from the more hawkish messages of Ramsden and especially Saunders. With the Bank reviewing its exit strategy, we contributed our take on how the gilt holdings vexing some MPC members can be rapidly removed as a problem (see BoE: how to unwind QE concerns).
  • We still expect tightening expectations to be thwarted as evidence gradually builds of a disappointing recovery. Further evidence for that came with the disappointing composition of UK retail sales in June (see UK: retail gorges on failing normalisation), various flash PMIs, and Covid-19 news. That same disappointment should ultimately subtract from the demand driving transitory but sizeable commodity price pressures (see Commodity prices cycling around).
  • The Euro area’s flash inflation data for July takes over the calendar next week. We are 0.2pp below the current consensus in forecasting a slight fall to 1.8% y-o-y. Base effects and reduced weight on some seasonally strong items drive the weakness we see.

July 22, 2021
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ECB’s new broom throws up a dust cloud

  • The ECB’s new strategic framework adopts a symmetrical 2% inflation target, but forward guidance remains opaque and open to interpretation.
  • The growing impact of the Delta variant plus the opaque nature of the forward guidance suggests that a September taper now looks less likely than December.
  • The ECB sees the risks associated with reducing stimuli too soon as greater than those of sustaining stimulative policy for too long.