This week

Novak Djokovic had just won his first Wimbledon title over in SW19, whilst in Leicester Square, Harry Potter fans queued to see what would be the last instalment of the franchise released in cinemas. Across on the continent, European bankers met in Paris in an effort to contribute to Greece’s debt relief and sooth market worries that a sovereign debt default would not be forthcoming. All reported in British tabloid newspaper, the News of the World, which had just published its last edition after 168 years, in the wake of a phone hacking scandal.

It’s hard to believe all of this was going on exactly 11 years ago to the month, and whilst Djokovic continues to dominate Wimbledon, there are some other happenings that economists will really have to cast their minds back for. Thursday saw the European Central Bank (ECB) make the historic call of raising rates in the bloc since the days when you could make an actual call on the new iPhone 4.

After guiding markets to expect a 0.25% hike, the central bank raised its lending rate by a surprise 0.5%, also signalling further rate hikes would be appropriate at their upcoming meetings. With inflation now at record highs on the continent, it seems like the ECB will follow the lead of the US Federal Reserve and Bank of England (BoE) in attempting to quell spiralling price rises.

The ECB also said it had approved a plan, to cap bond yields, key to helping heavily indebted countries like Italy, whose coalition government fell after the resignation of Prime Minister Mario Draghi this week, ironically the man in charge of the ECB back when they last hiked rates. On the news, the euro rose 0.6%, moving further away from last week's parity hit against the USD.

A 0.5% rate hike seemed all the rage this week as the Governor of the BoE, Andrew Bailey, said they could raise rates by as much during its next meeting, pledging to bring inflation under control. Although it was commented that such a move is "not locked in" during a speech to City leaders on Tuesday, inflation data released the following day only served to increase the chances of such a move.

With inflation carrying on its almost unrelenting path upwards, investors can take heart that, with some irony, it was pop band One Direction who topped the charts 11 years ago, showing that mercifully, given time, anything can eventually head in a downward trajectory.

Next week

With temperatures having hit records across the UK and much of Europe during the previous week, attention will shift to a different type of climate, as Monday brings with it German Business Climate data.

Detailing the change in mood amongst surveyed manufacturers, builders, wholesalers and retailers, the results can have quite the impact. The survey is highly respected due to its large sample size and historic correlation with German and wider Eurozone economic conditions, tending to create a hefty market impact when released. The data is useful in that it acts as a leading indicator of economic health, with businesses reacting quickly to market conditions, with changes in their sentiment acting as an early signal of future economic activity such as spending, hiring and investment.

Confidence is everything they say, and during the beginning of the week this rings particularly true as attention switch to the US for consumer confidence figures. This survey has a sample size of about 3,000 households, all of which are asked to rate the relative level of current and future economic conditions including labour availability, business conditions and the overall economic situation. Of course, financial confidence is a leading indicator of consumer spending and so the numbers are scrutinised over how they could affect both retail sales and inflation figures going forward.

The middle of the week could set the tone for the remaining few days as the US Federal Reserve announce what will now probably be another 0.75% rate hike. Only as short as 10 days ago, markets were pricing in an 80% chance of a 1% rise, although this has been tempered somewhat by softer subsequent inflation data, leaving the door open for a more palatable hike. The announcement will come in the form of a press conference, accompanied by minutes from their last meeting and the issues that were raised when coming to a decision.

Focus should stay on the world’s largest economy until the end of the week as US Gross Domestic Product (GDP) data is released. Acting as the broadest measurement of an economy’s health, the data should make for fascinating reading just a day after the Fed give their views on the trajectory of the US economy.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 22 July 2022.