Under Trump's tariff threats, the European Central Bank is holding steady, while the PMI and Ifo indices may determine future policies.

Investors preparing for the European Central Bank's interest rate decision meeting on Thursday are closely watching the intensive release of economic reports this week, as these data will be crucial in determining the direction of monetary policy. With ongoing uncertainties in trade tensions, policymakers in Frankfurt will evaluate the performance of the economies of the euro area's 19 countries under the threat of Trump's tariffs and geopolitical instability through these reports. Although the data released this week are unlikely to change the ECB's decision to pause interest rate cuts for the first time in a year, they will provide clues as to whether further rate cuts are necessary, whether at the September meeting or later for monetary easing adjustments. Jan Hatzius, Chief Economist for Goldman Sachs Europe, pointed out that the data itself will not decide on interest rate cuts at the last minute, but if there are signs of economic slowdown, it will strengthen the case for further easing. ECB President Lagarde stated last month that after lowering the deposit rate to -2% for eight consecutive quarters, the rate cut cycle is nearing its end. Currently, borrowing costs are at a neutral level, neither stimulating nor hindering economic activity, giving the central bank enough room to address uncertainty. The quarterly bank lending survey released on Tuesday is particularly crucial, being the first survey since Trump announced tax policy changes in April, which will directly reflect the actual effects of rate adjustments. Banks had tightened credit standards previously due to increased risks, but ECB executive board member Schnabel mentioned that the last survey showed lower borrowing costs boosting mortgage loan demand, creating some stimulating effects. Fabio Balboni, an economist at HSBC, believes that this survey will reveal how tariffs and geopolitical uncertainties affect policy transmission. If credit conditions continue to significantly improve under external pressures, it will strengthen Schnabel's assessment of "lending easing," but this phenomenon has not been observed yet. Bloomberg Economics predicts that the ECB is currently in a wait-and-see stance, and may ultimately further cut rates in September and December. The policy statement after the July 24 meeting is expected to be consistent with that of June, allowing room for further cuts without commitment. Since the last meeting, there have been differing views among committee members on the economic outlook: French Central Bank Governor Villeroy de Galhau warned of resistance to economic growth and long-term inflation below 2%, implying support for further rate cuts; whereas Silke Tober of the German IMK Institute believes that current rate cuts are insufficient to offset economic weakness, especially considering the impact of a stronger euro. However, officials have also emphasized the resilience of businesses and households, with Schnabel stating that the threshold for further rate cuts is "very high". First quarter economic performance exceeded expectations, but with the fading of previous order effects, ECB Vice President de Guindos expects growth to "almost stall" in the second and third quarters. The June initial economic data will be released on July 30, but the global PMI survey by Standard & Poor's on Thursday and Germany's Ifo Business Confidence Index the next day will reveal the impact of Trump's trade policy and validate the accuracy of the ECB's economic forecast in June. The forecast assumes a relatively mild trade friction (far below Trump's threat of a 30% tariff), with inflation forecasted at only 1.6% in 2026 and rising to the target level in 2027, while economic growth is expected to accelerate to 1.3% during that time. The key issue now is whether public spending in Germany and other regions in Europe can offset the uncertainties of tariffs and the impact of the euro's strength on competitiveness. Paul Hollingsworth, an economist at BNP Paribas in Paris, believes that the hard data for the second quarter may be slightly weak, but forward-looking survey data will show signs of recovery. The ultimate direction of this policy observation period will depend on further verification of more economic signals.