Next week, we will pay close attention to decisions from the ECB and PBoC about LPR rates, as well as the CBRT, Global PMI surveys, the Japanese Upper House Election, and UK Retail Sales. **Japanese Upper House Election** On Sunday, all eyes will be on the Japanese Upper House Election. The LDP-led coalition could lose its majority, impacting domestic yields. There are 124 out of 248 seats that are up for re-election. **PBoC Rate Decision** On Monday, the PBoC is expected to keep rates unchanged. Currently, the 1-year LPR is at 3.00%, and the 5-year is at 3.50%, reflecting strong recent economic data.

European Central Bank Decision

Thursday is the ECB’s policy announcement, where there’s a 94% chance rates will remain the same. Ongoing trade tensions between the EU and US pose risks to growth, raising concerns about falling short of the ECB’s 2% inflation target. For July, the eurozone’s manufacturing PMI is predicted to be 49.7, with services at 50.8 and the composite at 50.9. In the UK, PMIs are also expected to show slight increases. Analysts predict the Bank of England will keep policies unchanged unless there is a significant change in economic indicators. The CBRT is expected to lower rates, continuing its response to political instability. A cut from 46% to 43.50% is expected after inflation numbers came in lower than anticipated. On Friday, UK Retail Sales data will be in focus, with a forecasted rise of 1.1% month-on-month following weaker figures last month due to an exaggerated drop in sales volumes. We view the outcome of the Japanese election as a major factor for government bond volatility, where recently the 10-year yield rose above 1.1% for the first time since 2011. Derivative traders might want to consider long-volatility strategies on yen-denominated assets, especially with the risk of a minority government that could push the prime minister toward fiscal stimulus, which may increase yields and impact the currency. The People’s Bank of China is unlikely to cause major market movement, as a rate hold is expected. After a stronger-than-forecast 5.5% GDP growth in Q2, authorities seem less pressured for immediate stimulus. As a result, we recommend avoiding large bets on Chinese rates this week and expect implied volatility to remain low.

European And Turkish Central Banks

For the ECB, we expect a steady approach this week, keeping short-term rate volatility low. However, trade tariffs from the US could pose risks, so traders should be cautious about being short volatility on the euro. The euro’s recent rise toward 1.09 against the dollar complicates the inflation outlook for policymakers like Lagarde, making any hawkish comments unlikely. Flash purchasing managers’ index data will provide insight before the main policy announcement. While modest growth is anticipated, any weakness in forward-looking components may indicate trade concerns are affecting sentiment, as suggested by a recent drop in the July Sentix investor confidence survey. Significant deviations could cause brief spikes in volatility, creating short-term trading opportunities in equity index futures. In the UK, we are hopeful for a rebound in retail sales following a sharp 2.7% drop in May. This could ease expectations for aggressive easing from the Bank of England. While purchasing managers’ surveys will likely confirm steady, uninspiring growth, a strong consumer report might lead traders to slightly lower their expectations for 50 basis points of rate cuts by year-end, offering temporary support for the pound against major currencies. The Central Bank of the Republic of Turkey will make a significant decision, with expectations centered on a 250 basis point cut. With June’s annual inflation at 35.05%, there’s a valid reason for easing, but derivative traders should be cautious about the extent of this move. An aggressive cut could speed up the lira’s decline amid political issues surrounding Erdogan, making options strategies that take advantage of high volatility appealing. Create your live VT Markets account and start trading now.

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