ECB to deliver its first rate hike since 2011

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The ECB is set to have its first rate hike in more than a decade against a challenging economic backdrop exacerbated by the war in Ukraine.

Before the Fed meeting next week, the European Central Bank is poised to raise rates for the first time since 2011 on Thursday, with a hike of 25 basis points expected.

The ECB president will probably raise rates to curb inflation just as war and energy prices threaten to tip the eurozone into recession.

The rate hike will come alongside a new bond-buying plan that the central bank hopes will prevent rising borrowing costs from sparking another eurozone debt meltdown. Last week’s sharp fall in the euro below the value of the US dollar for the first time in 20 years reflects the worsening outlook. 

Eurozone inflation hit 8.6% last month and is expected to keep rising until the autumn, driven by soaring fuel and food prices.

Investors tamped down expectations that the Fed will take a more aggressive approach at its meeting later this month. A Wall Street Journal report said the central bank is on track to lift interest rates by 75 instead of 100 basis points forecast by some market participants.

Still, recession fears have been prominent in recent weeks as Wall Street considered decades-high inflation. 

A busy week began with big names reporting earnings this week, including Netflix, Tesla, United Airlines, and Verizon. Despite the growing recession fears, economists expect S&P 500 companies to post a 4.2% year-over-year increase in second-quarter profit. 

Flash PMIs for the US, Europe and Japan – ECB’s first rate hike

This week’s economic calendar includes updates on housing starts, existing home sales, and the Philadelphia Fed Manufacturing Index. In addition, Federal Reserve speakers will be in a blackout period ahead of the FOMC meeting on July 26-27. 

The week ahead’s flash PMI updates will reveal how the world’s major developed economies – the US, Eurozone, Japan, UK and Australia – are faring at the start of the third quarter.

This week will see US flash PMI in focus after last month’s data pointed to a US demand falling as inflation rates hit 40-year highs. 

Meanwhile, after Canadian policymakers surprised the market with a larger than expected 100bp rate hike, this week’s inflation data will be in focus.

Economic events to watch

Tuesday 19 July

United Kingdom Unemployment Rate (May)

Euro Area Core Inflation Rate (Jun)

United States Building Permits, Housing Starts (Jun)

Wednesday 20 Jul

China Interest Rate Decision

United Kingdom Inflation Rate (Jun)

Canada Inflation Rate (Jun)

Euro Area Consumer Confidence Flash (Jul)

Thursday 21 Jul

Japan BoJ Interest Rate Decision, BoJ Quarterly Outlook Report, Balance of Trade (Jun)

Euro Area ECB Interest Rate Decision

United States Continuing Jobless Claims, Initial Jobless Claims (Jul)

Friday 22 Jul

Australia S&P Global Flash PMI Manufacturing & Services*

Japan au Jibun Bank Flash PMI, Manufacturing & Services* (Jul), Inflation Rate, Foreign Bond Investment (Jun)

France S&P Global Flash PMI Manufacturing & Services* (Jul), Business Confidence (Jul)

Germany S&P Global Flash PMI Manufacturing & Services*

Euro Area S&P Global Flash PMI Manufacturing & Services*

United Kingdom S&P/CIPS UK Global Flash PMI Manufacturing & Services*

United States S&P Global Flash PMI Manufacturing & Services* (Jul), Gfk Consumer Confidence (Jul), Retail Sales (Jun)

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