Investment Institute
Weekly Market Update

Take Two: Fed eyes more restrictive stance; ECB leaves door open to bigger hikes

  • 11 July 2022 (5 min read)

What do you need to know?

The US Federal Reserve could take a “more restrictive stance” even though higher interest rate increases could have a “larger negative effect on economic activity than anticipated”, minutes of its latest policy meeting showed. The Federal Open Market Committee indicated it would likely vote for a 50 or 75 basis point (bp) rate hike at its meeting this month. Minutes of the European Central Bank’s (ECB) latest meeting showed it expects to raise rates by 25bp in July, leaving the door open for a larger hike in September. Elsewhere, UK Prime Minister Boris Johnson resigned as leader of the Conservative Party, starting the process for a new leadership election.

Around the world

The ECB will gradually decarbonise its corporate bond holdings, as part of plans to further incorporate climate change into its monetary policy operations. It said it would account for climate change in its corporate bond purchases, collateral framework, disclosure requirements and risk management, to “support the green transition of the economy”. It also said the measures would give companies and financial institutions incentives to be more transparent about, and to reduce, their carbon emissions. ECB President Christine Lagarde said the changes show the bank is “turning our commitment to fighting climate change into real action”.

Figure in focus: 78.6%

Turkey’s official inflation rate soared to 78.6% in June, its highest level in 24 years, from 73.5% in May. However, some economists, and critics of President Recep Tayyip Erdoğan’s government, believe the real rate could be almost double that figure, according to reports. Erdoğan’s economic model has focused on cutting interest rates to boost economic growth, pushing up costs in a country that is heavily dependent on imports, while the Turkish lira has also fallen sharply.

Words of wisdom

Sand battery: The use of low-grade sand to store energy and help overcome the intermittency of renewable sources. The first commercial installation of the system has been deployed at a power plant in Finland, using a silo containing about 100 tonnes of builder’s sand which is able to sustain temperatures of up to 500 degrees Celsius once heated. The warm air produced can then be discharged at times of high energy costs or low renewables availability. In its early form, the system is more efficient as a supply of heat, rather than being used to convert that heat back into electricity.

What’s coming up

July’s Eurozone ZEW Economic Sentiment Index arrives on Tuesday, while on Wednesday, the UK’s GDP data for May is published. On the same day updated inflation numbers for Germany, France, Spain and the US land, while the Bank of Canada convenes to decide on interest rates. Thursday sees the US report its four-week average for jobless claims. China announces GDP numbers for the second quarter and the US publishes industrial and manufacturing production numbers for June on Friday.

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