Policy decisions from the European Central Bank and Bank of Japan dominated the news flow last week despite no major changes. The ECB left rates on hold, with remarks from President Mario Draghi stoking expectations of a more hawkish bias during the second half of the year. The ECB will discuss asset purchases in the fall according to Draghi, with the potential for monetary tightening pushing the Euro to its highest point against the dollar in two years. Nevertheless, headline inflation slowing to 1.30% alongside 1.10% annualized core inflation could change the outlook.
The Bank of Japan also kept policy unchanged, but responded with a revised inflation and GDP outlook. Although the timeline for reaching the 2.00% inflation target has been extended, growth expectations were revised higher, suggesting an acceleration in economic activity is right around the corner. In other news, Chinese growth managed to top estimates, rising 6.90% through the end of the second quarter helped by stronger traction in retail sales and industrial production. However, there are concerns that this growth could give way to weakness during the second half of the year amid tighter lending conditions. Rounding out the week, UK inflation managed to pull back moderately, helping ease concerns about inflation eroding household purchasing power.