Macroeconomics: The Day Ahead for 31 July 2026

A very choppy first month of Q3 draws to an end, with tensions in the Persian Gulf, Red and Black Seas remaining very elevated, as the BoJ policy meeting and a bout of sharp JPY volatility are digested, along with China’s NBS PMIs and UK Lloyds Business Barometer, Eurozone CPI, German Unemployment, with Canadian monthly GDP and US Q2 Employment Cost Index ahead.

BoE’s Pill is the sole scheduled central bank speaker following on from the closer-than-expected MPC rate vote, but it would come as no surprise to see one or other Fed speaker, above all the dissenters – Hammack, Kashkari, Logan – giving voice to why they dissented. There is also the so-called ‘Board of Peace’ Gaza disarmament agreement to consider, though as with US/Iran negotiations to come to a peace disagreement, it is the actions that all sides actually take, rather than political rhetoric which will be the arbiter of whether this is of genuine significance. There are also the contrasting fortunes of the Amazon and Apple earnings reports to absorb.

** Japan – BoJ rate decision, FX intervention **

As expected, the BoJ held rates at 1.0%, with one dissent for a hike from Takata. The downward forecast revisions to 2026 CPI offered some support for today’s decision, along with core CPI forecast being held at 2.0%, but outside of the latter, all other headline and core / core core CPI forecast are above 2.0%. While there was an acknowledgement from Ueda that inflation ‘overshoot’ risks are rising and a faster pace of hikes might be needed, with particular emphasis on the weakness of the JPY. But he also noted that the BoJ needs to assess the impact of prior rate hikes and this could take up to a year, in effect putting a high bar on a faster pace of rate hikes, with Ueda also noting risks to financial stability if the BoJ were to pick up the pace of rate hikes. What appears to have been co-ordinated FX intervention by Japan and South Korea, perhaps with some assistance of the US, had a sharp immediate impact, wiping out all the USD gains vs JPY since mid-May, but this again looks to be little more than a passing setback, putting something a red line in the 163-165 area, but without BoJ action, the JPY is likely to remain under pressure medium-term.

** China – July NBS PMIs, Politburo meeting **

The significantly weaker-than-expected NBS PMIs – Manufacturing 49.2 from 50.3 and perhaps more worrying Non-Manufacturing 49.0 vs. 50.2, the weakest since December 2022, reinforce the view that domestic demand remains very weak. The weakness was quite broad-based; outside of the booming tech sector, some of that weakness, particularly in Construction, can be attributed to storms, flooding and heatwaves, but consumer spending remains persistently weak, and the property sector a millstone, even as external demand continues to provide a large offset. Per se the need for stimulative measures is more than clear, above all given the sharp and growing imbalances in the economy. No additional spending was announced, but that is/was a function that budgeted spending and indeed debt issuance is well below targets set at the beginning of the year, and amounts to around CNY 1.3 Trln, which is roughly equivalent to 1.8% of GDP. The measures announced again appear to be more a case of putting a floor under growth, rather than to accelerate, with concerns about industry overcapacity (even in booming sectors such as high tech and alternative energy) and ‘involution’ (race to the bottom on prices to gain market share, a particular challenge in the auto sector) continuing to dominate policy making. But the real challenge remains the labour market, with informal ‘gig economy’ labour force growing and the formal labour market shrinking, putting downward pressure on household income, and by extension curbing spending. However, the measures announced look to improve the delivery of goods and services, which is unlikely to materially boost income growth, especially without measures to address the long-term drag from the woe begotten property sector. That said, external demand does appear likely to hold up in H2 2026, and suggests this year’s growth target will be met, by extension reducing the pressure on policymakers to take more decisive action.

** Eurozone – Q2 GDP / July CPI **

In contrast to the US, yesterday’s GDP was quite broadly better than expected, thanks in part to Ireland, but also to various factors such as inventory building, AI Data centre investment, a rebound in external demand in some countries, rather than signalling a pick up in underlying growth trends. Today’s CPI was perhaps a little surprisingly in line with forecasts at 0.2% m/m, 2.9% headline and slightly above on core CPI at 2.5% y/y, paced primarily by energy prices and some modest upward pressure on Services, with some offset by Food, but there are no current signs of any spillover from energy prices. But the combination of the ostensibly better-than-expected GDP and the renewed uptick in inflation do support the case for a further ECB rate hike in September.