Investment Institute
Monthly Market Update

July Global Macro Monthly - Temperature keeps on rising for central banks

  • 27 July 2022 (10 min read)

Key points:

  • Inflation continues to rise higher in multiple jurisdictions, hitting 40-year highs in the US, UK and Canada.
  • Central banks are reacting to higher inflation and the threat to expectations with quicker and bigger rate hikes.
  • The ECB joined the party with a surprise 50bps increases and introduced the Transmission Protection Instrument to minimise monetary policy fragmentation.
  • The ECB’s task is made harder with political uncertainty again in Italy and risks to gas supply from Russia.
  • The Fed continues to tighten aggressively, but looks unlikely to follow the BoC’s lead in raising by 100bps.
  • Fed guidance from here will be tricky as it needs financial conditions to remain tight to restore price stability, but not tighten much further and induce recession.
  • This threatens the more constructive risk asset outlook.

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