Published: 06/09/2022 By ECAP
A raft of second-tier data points last week all came out stronger-than-expected in the UK: retail sales, house prices and mortgage approvals, as well as an upward revision to the manufacturing PMI. None of this was particularly helpful to sterling, which continued to track the euro down against the US dollar, but it does seem to indicate that people calling for an immediate recession have got a bit ahead of themselves. Focus this week will be on the outcome of the leadership contest in the Conservative party and how Liz Truss settles into her new role as Prime minister for the UK.Inflation data out last week confirmed that the ECB faces perhaps the toughest job of any of the world's major central banks. Inflation yet again surprised on the upside, in both the headline and core indices, and in both cases printed another all-time record for the Eurozone. The ECB meeting is perhaps the most critical this year. The inflation numbers are awful and the central bank is clearly behind the curve; at the same time, the energy shock that has resulted from Central Europe's dependence on Russian gas is unlike that seen anywhere else. Market suggest that the ECB will still hike by 75bps, as the level of rates in the Eurozone lags hopelessly behind its peers and economic reality, and there isn't much that monetary policy can do to conjure up gas and alleviate shortages.