Euro pops after ECB hike rates by 0.5% – Daily Market Brief, July 22, 2022

UK retail sales fell -0.1% MoM in June, less than forecast, as households struggle with rising inflation. The FTSE points to a stronger open and to gains across the week.

·      ECB hikes rates by 50 basis points, EUR/USD is set to gain 1% across the week

·     Nasdaq is set to rise 5.5% this week as aggressive Fed bets ease & earnings impress

·      UK PMI data is expected to show a slowdown in growth

European stocks are set to open mixed after a mixed finish yesterday as investors digested news that gas flow along the Nord Stream 1 pipeline was back online and after the ECB raised interest rates for the first time in 11 years.

The ECB hiked rates by 50 basis points, larger than the 25 basis points initially expected, as the central bank ramps up its fight against record high inflation. ECB policymakers also agreed to provide additional help to the more indebted countries with a new bond purchase scheme to address fragmentation fears in the market.

The EUR/USD initially rose to a high of 1.0280 before paring some of those gains as the new fragmentation tool brought more questions than answers. Still, the euro is set to gain 1% across the week, its first weekly gain in three weeks.

US

US indices also booked substantial gains yesterday after weaker than expected jobless claims data saw the market pare back bets that the Federal Reserve will act aggressively to raise interest rates. Jobless claims rose to 251k, up from 244k in the previous week and an eight-month high. The data suggest that weakness is creeping into the labor market as the economy slows.

The Nasdaq led the gains closing 1.3% higher, also boosted by upbeat earnings from Tesla. The heavy tech index is set to rise over 5% across the week as, so far, the tech sector has broadly impressed the market. Twitter is due to report earnings today. Big tech Apple, Amazon, Alphabet, and Meta are expected to report next week as investors look for further clues on how the tech giants are performing amid rising inflation and slowing growth.

UK retail sales

UK retail sales fell by less than expected in June. Sales dropped -0.1% MoM, an improvement from MAY’S -0.5% decline and ahead of forecasts of a -0.3% fall. The four-day bank holiday in June helped support sales, as falling consumer confidence and surging inflation impact consumer habits, which was further highlighted in Ocado’s results yesterday. The online grocer reported a loss in the first half, noting that shoppers were spending less.

GBP/USD trades lower, back below 1.20 but is set to gain 0.9% across the week, thanks in part to the weaker USD.

The FTSE is pointing to 0.1% gains on the open and is set to rise 1.5% across the week.

Looking ahead, UK PMI data is expected to show that activity in both the manufacturing and service sector slowed in July. A larger-than-expected decline could raise recession fears and pull the GBP and the FTSE lower.

Looking ahead

US PMI data is also expected to show a slowdown in activity, with the composite PMI falling to 51.7, down from 52.3 in June. The level 50 separates expansion from contraction.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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