Week ending 22nd July 2022.

It has been a strong week for markets, seeing key markets well into positive territory over the week.

In the midst of heatwaves across Europe and North America (here in the UK, we saw record breaking temperatures, with the mercury hitting 40.3 degrees Celsius in Lincolnshire), the US president Joe Biden acknowledged climate change as a “clear and present danger”. Biden unveiled a $2.3 billion plan to deal with climate change; to build resilient infrastructure that can withstand extreme weather. This is great news for manufacturing jobs and spending in the region.

Over to Europe – the ECB’s (much anticipated) rate rise came this week – the central bank increased rates by 0.5%, which is a larger move than was initially floated by the central bank. This is the first increase since 2011, and brings the rates to 0%. As we said earlier in the week, this move to parity is a statement in itself, and hasn’t impacted markets negatively – in fact, Europe enjoyed a strong week for markets. The central bank is tackling the fine line between tempering near-term inflation and avoiding the economy slipping into recession.

In other central bank news, Japan issued fresh forecasts, projecting inflation to exceed targets this year; the country saw inflation hit 2.4% in June. Although a textbook answer to above target inflation would be to increase interest rates, in reality, it is never that simple. The BOJ maintained ultra-low interest rates to preserve the economy, standing out as an outlier amongst other central banks globally, who are tightening monetary policy. The governor of the BOJ, Haruhiko Kuroda has previously said that rates won’t rise on inflation alone, it needs to be accompanied by stronger demand and wage growth.

Elsewhere, Nordstream 1 – the gas pipeline running from Russia to Europe which closed for 10 days of maintenance – reopened on Thursday, putting at ease any concerns that closure would be protracted and gas flow to Europe would be choked.

And finally, in Italy, Prime Minister Mario Draghi (dubbed Super Mario) has resigned for a second time, this time successfully after failing to secure backing from government. In what feels like our weekly global leadership observations, we move from Meat Loaf last week to Queen this week – yes, “another one bites the dust”.

Coming up next week, we have US Q2 GDP, US consumer confidence, the Federal Open Market Committee statement and the Fed interest rate decision.

Investment Management Team