Market Update – 13th July 2022

13th July 2022

NASA released images from its James Webb Space Telescope this week, one of which is a crystal-clear picture which is said to contain the “deepest, most detailed infrared view of the universe to date”, allowing us to see billions of years into the past.

Back down to earth, and heads of central banks are trying to look to the future using data to gain as much clarity as possible. The Governor of the Bank of England, Andrew Bailey, appeared before the treasury select committee this week, and reiterated that the central bank still forecasts that inflation is likely to fall sharply next year. This means the central bank will need to be measured and data dependent with their interest rate increases, so that they don’t risk adding to deflationary pressures into next year.

Nord Stream 1 – the underwater pipeline that supplies a large amount of gas from Russia to Europe – closed on Monday for maintenance. Whilst concerns grew over whether the reopening of the pipeline (scheduled for 21^st July) could be weaponised by Russia, it should be noted that the Siemen’s turbine that was needed for Nord Stream 1 has been allowed to leave Canada (this part was previously taken to Canada for maintenance, and not returned due to sanctions). As the delay was quoted as the reason that Gazprom reduced gas flows to Europe to 40% of capacity, this news could support the level of gas flows to Europe, until they are able to end their reliance on Russian gas.

The Euro took a dive this week, as it edged towards parity with the dollar, due in part to tightening of monetary policy in the US. Parity means the exchange rate becomes 1:1, and (currency transaction fees aside) a 1 Euro croissant in Nice would cost a US resident on their holidays, $1. The last time this happened was 20 years ago. The ECB will meet next week, and the chair has already signalled that a small interest hike of 0.25% is due in the region, bringing Europe’s interest rates that bit closer to those of the US. The weak currency should be supportive for European exports.

Later in the week, we have US CPI, Eurozone and UK industrial production, Chinese GDP and the University of Michigan consumer sentiment index.

Hannah Owen, Portfolio Specialist