The Hungarian central bank yesterday cut its key policy rate by 20bp to 2.10%

Market movers today

• On the data front, the calendar is thin today with minutes from the Bank of England (BoE) July meeting as the main event. With the first rate hike from the BoE likely to be drawing closer, the market will probably scrutinise the minutes for any new hints as to when this might take place. Euro area consumer confidence in July may also attract some attention today. We expect the index to rise to -7 from -7.5 and thus indicate a further retreat in pessimism among euro area consumers.

• Other than that, geopolitical conflicts in Ukraine and Gaza, respectively, are likely to be the focal point today. Note though, the global oil market has so far taken the recent escalation of geopolitical tensions relatively calmly. First, ample supplies on the global market are keeping a hand over oil prices. Second, Russia’s energy trade has not been affected by sanctions, which have so far targeted certain individuals and organisations. Hence, in our view, the risk of a higher oil price is relatively limited at the current stage. That said, the long list of geopolitical events recently has triggered a small rise in oil price volatility albeit from a very low level.

Selected market news

• Yesterday, the EU decided to speed up the implementation of planned sanctions against Russia in addition to adding new names and organisations to the list of individuals and organisations affected by the sanctions. The current and planned measures are so-called ‘phase 2’ sanctions but pressure is mounting on the EU to take a step further and introduce ‘phase 3’ sanctions, which target economic sectors. In particular, the arms trade has been mentioned as a sector that could be hit by sanctions next if Russia does not contribute to defusing the conflict.

• Core inflation in Australia rose more than expected in the second quarter. The release earlier this morning showed that core consumer prices rose 0.8% q/q and 2.9% y/y in Q2 from 0.5% q/q and 2.6% y/y in Q1. AUD strengthened a bit on the news, which should further limit the likelihood of a rate cut from Reserve Bank of Australia.

• The Hungarian central bank yesterday cut its key policy rate by 20bp to 2.10%. We expected a 10bp rate cut and this was also the consensus expectation. Overall, the more aggressive rate cut is justified given that we now have outright deflation in Hungary and more rate cuts are certainly in the pipeline. Overall, this does not change our overall expectations for monetary policy in Hungary and for the forint.