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BOV Market Watch - Week ending 5th August 2022
05 Aug 2022

Bank of England (BoE) hikes interest rates as it predicts inflation to rise to 13 percent. In a surprise unanimous decision by the BoE’s Monetary Policy Committee on Thursday, the UK’s central bank hiked its key refinancing interest rate by half a percent to 1.75 percent, its biggest increase for 27 years. Thursday’s hike was the sixth rise in a row and was in line with economists’ expectations. The bank confirmed its expectations that the economy will start contracting later this year, whilst being forced to take aggressive action due to a new forecast that sees inflation rise to over 13 percent by the fourth quarter of the year, largely due to another big increase in regulated household energy prices. It had previously forecast a peak in inflation of only 9.4 percent.

Eurozone business activity falls to 17- month low. Eurozone business activity unexpectedly contracted in July due to a slowdown in manufacturing and of the services sector growth coming to a near halt, as accelerating cost increases forced consumers to tighten their belts, a survey showed. S&P Global’s final composite Purchasing Managers’ Index (PMI), used as a measure of economic health, fell to a 17-month low of 49.9 in July from June’s 52.0, albeit slightly better than a preliminary 49.4 estimate. Readings below 50 indicate contraction. S&P Global said production was weakening in all countries surveyed other than the Netherlands and that the rate of decline was of particular worry in the currency bloc's three biggest economies, namely, Germany, France and Italy.

Strong US services ISM eases recession fears. The US services industry unexpectedly recovered in July following firm growth in new orders, supporting views that the economy was not in recession despite a fall in output in the first half of the year. According to the Institute for Supply Management (ISM), July services PMI rose to 56.7 from 55.3 in June, a strong expansion rate that suggests the economy is not in dire straits. Analysts had expected the headline index to decline to 53.5. Comments from ISM member respondents included in the report, underlined various issues being seen in the services sector, including slowing economic activity and inflation, among others.

China Caixin services PMI improves further in July. China's services sector expanded at its fastest pace in 15 months in July as easing of Covid-19 restrictions underpinned consumer confidence, a private-sector survey showed on Wednesday. However, the report also showed that foreign demand weakened due to Covid curbs at Chinese ports and companies reduced staff for the seventh consecutive month. The Caixin services purchasing managers' index (PMI) rose to 55.5 in July, the fastest growth since April 2021, on the heels of the robust reading of 54.5 in June. Service companies surveyed in the Caixin PMI reported a faster output expansion in July as new orders, mainly from domestic clients, increased at a faster pace. Foreign demand, however, fell modestly in the month under review, Caixin and S&P Global said.

India hikes interest rate to pre-pandemic level. The Reserve Bank of India (RBI) raised its key lending rate to 5.40 percent after raising rates by 50 basis points - a level last seen in August 2019 - three months after initiating a monetary tightening cycle in May. The RBI’s Monetary Policy Committee decided upon this move unanimously. Analysts had forecast a 35 basis point hike. Inflation in India remains higher at about seven percent compared with the RBI’s six percent ceiling. In addition, RBI also needs to take into consideration capital outflows given the aggressive rate tightening being carried out by the US Federal Reserve, which puts pressure on the Indian currency, the rupee.  

 

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).