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60 Second Snapshot 25th July

25 July 2022

 

 

LAST WEEK IN 30 SECONDS...

The ECB on Thursday increased interest rates for the first time in over 10 years. Rates have been
negative since 2014, but with mounting inflationary pressures the ECB were forced to increase rates
by 50bps with key deposit interest rates now at 0%. The ECB also announced the Transmission
Protection Instrument, a new bond buying scheme. The purpose of the tool is to try counter the surge
in the cost of borrowing for some of the area’s more indebted countries such as Italy and Spain.
UK inflation reached a fresh 40-year high last week as it hit 9.4%, 0.1% higher than analysts’ forecasts.
The increase was largely driven by increases in petrol and food prices. The BoE are expected to meet
in two weeks to discuss the next rate increase as consumer confidence interval hit a 48-year low.

Global equities were up 1.7% last week as Snap and Twitter both fell sharply on the back of missed
earnings reports. Netflix surprised the market having comfortably beaten analysts’ pessimistic
forecast for the quarter.

 

THIS WEEK IN 30 SECONDS...

As fears of recession continue to mount, this week will be a very important one in terms of economic
data releases. US consumer confidence data will be released on the 26th before the Federal Reserve’s
interest rate decision is announced on the 27th and GDP growth data on the 28th. In Europe, Friday
will see Euro area consumer confidence and inflation rate announcements. Alongside this, individual
countries such as Germany, France and Italy will release data on consumer confidence, GDP growth
and unemployment rates on the same day. In Japan, minutes from their monetary policy meeting
will be released on the 26th, along with consumer confidence data and unemployment rate figures
on the 29th.

Next week will also be an important week for earnings releases, with many tech giants including
Microsoft (26th), Visa (26th), Facebook (27th), Apple (28th) and Amazon (28th) all releasing their quarterly
earnings data.

 

ITALIAN-GERMAN SPREAD WIDENS AS DRAGHI RESIGNS

Yields on Italian 10-year government bonds (BTPs) rose last week to almost 3.7% as the ECB announced
a 50bps interest rate increase and the Italian Prime Minister, Mario Draghi, resigned. The relationship
between the BTP and German bund is a viewed as a gauge of market stress within Italy and rose to
2.4% during the week. Draghi’s resignation has added to the political crisis in Italy where political
interruptions could affect the country’s access to €200bn worth of EU recovery funds, further
increasing Italian debt risk. The events in Italy will make it difficult for the ECB to take an aggressive
policy approach to combat inflation as they must avoid pulling regions into recession by increasing
rates. Draghi’s resignation may accelerate the use of the ECB’s new bond-buying tool.