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Weekly Market Update

Take Two: ECB flags July, September rate hikes; OECD cuts world growth forecasts

  • 13 June 2022 (5 min read)

What do you need to know?

The European Central Bank said it intends to raise interest rates by 25 basis points next month in what would be the first hike in 11 years – and signalled a possible larger move in September as it seeks to tackle sustained high prices in the Eurozone. The central bank wants to bring annual inflation back to its 2% target over the medium term after it hit 8.1% in May. It intends to end its bond-buying stimulus programme on 1 July. Last week also saw a sizeable upwards revision to Eurozone GDP growth for Q1, to 0.6% quarter on quarter, after an initial reading of 0.3%.

Around the world

Global growth is expected to slow sharply this year due to the war in Ukraine and supply chain disruptions worsened by COVID-19-driven lockdowns in China. The Organisation for Economic Co-operation and Development cut its 2022 growth forecast to around 3%, well below the 4.5% it predicted in December. It said rising food and energy inflation “is causing hardship for low-income people and raising serious food security risks in the world’s poorest economies.” The World Bank meanwhile cut its 2022 estimate to 2.9% from the 4.1% earlier forecast, and warned many countries were facing stagflation and recession.

Figure in focus: $252.6bn

US exports of goods and services reached a record high of $252.6bn in April, up 3.5% and helping shrink the country’s trade deficit by the most in almost a decade. There were record highs in exports of industrial supplies, petroleum and food. Imports, meanwhile, shrank by 3.4%, reflecting the impact on demand of the Federal Reserve’s rate hike path and signalling that inventory levels may be normalising. Imports from China alone dropped by $10.1bn in the month, but trade data from China for May indicated Beijing exports are picking up again with a spike of 16.9% in the month from a year ago – more than double analysts’ forecasts.

Words of wisdom

Friendshoring: Moving supply chains to trusted ‘friendly’ countries to ensure continued market access. US Treasury Secretary Janet Yellen suggested in a recent speech that friendshoring would “lower the risks to our economy as well as to our trusted trade partners”. Critics claim however that the practice could favour trade partners with similar levels of development, leaving emerging market countries unable to enjoy some of the potential benefits of globalisation, while developed countries would have less access to cheap imports or labour.

What’s coming up

On Monday, India’s inflation data for May is published – the annual rate hit 7.79% in April, its highest since 2014, while Tuesday sees the UK announces its latest unemployment data. On Wednesday, all eyes will be on the US Federal Reserve which convenes to decide on interest rates and deliver its updated economic projections. The Bank of England holds its own monetary policy meeting on Thursday, as does the Bank of Japan. On Friday, a final estimate for May’s Eurozone inflation rate is reported.

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The AXA IM Investment Institute brings together experts from across our macro research and investment teams to help you make more informed investment decisions. Here, you can access timely insights on markets and macro events, as well as our views on long-term future trends. To mark the launch, our experts have come together to analyse how the current geopolitical environment may affect the race to net zero and examine what it means for investors. Visit the AXA IM Investment Institute here.

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