WEEK IN REVIEW
UK Inflation
Source: Trading Economics
The
annual inflation rate in the UK increased to 9.4% in June of 2022 which
is the highest rate since 1982 and slightly above market forecasts of
9.3%. The biggest price pressure came from the cost of motor fuels which
increased at a record 42.3%, as average petrol prices rose by 18.1
pence per litre in June 2022, the largest monthly rise on record since
at least 1990. This compares with a rise of 2.5 pence per litre a year
ago. Food prices made the second biggest upward contribution (9.8%, the
highest rate since March 2009 vs 8.6% in May), namely milk, cheese,
eggs, vegetables and meat. Prices of housing and utilities also
increased faster (19.6% vs 19.4%). On the other hand, prices of
recreation and culture increased at a slightly slower pace (4.8% vs 5%)
while downward contributions came from second-hand cars (15.2% vs 23.4%)
and audio-visual equipment (-2.4% vs 1.7%). Compared to the previous
month, consumer prices were up 0.8%, above 0.7% in May, and forecasts of
0.7%.
ECB Rate Hike
Source: European Central Bank
In
line with the Governing Council’s strong commitment to its price
stability mandate, the Governing Council took further key steps to make
sure inflation returns to its 2% target over the medium term. The
Governing Council decided to raise the three key ECB interest rates by
50 basis points and approved the Transmission Protection Instrument
(TPI).
The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting. This decision is based on the Governing Council’s updated assessment of inflation risks and the reinforced support provided by the TPI for the effective transmission of monetary policy. It will support the return of inflation to the Governing Council’s medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjust to deliver its inflation target in the medium term.
At the Governing Council’s upcoming meetings, further normalization of interest rates will be appropriate. The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term. In the context of its policy normalization, the Governing Council will evaluate options for remunerating excess liquidity holdings.
The Governing Council assessed that the establishment of the TPI is necessary to support the effective transmission of monetary policy. In particular, as the Governing Council continues normalizing monetary policy, the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries. The singleness of the Governing Council’s monetary policy is a precondition for the ECB to be able to deliver on its price stability mandate.
The TPI will be an addition to the Governing Council’s toolkit and can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area. The scale of TPI purchases depends on the severity of the risks facing policy transmission. Purchases are not restricted ex ante. By safeguarding the transmission mechanism, the TPI will allow the Governing Council to more effectively deliver on its price stability mandate.
In any event, the flexibility in reinvestments of redemptions coming due in the pandemic emergency purchase programme (PEPP) portfolio remains the first line of defence to counter risks to the transmission mechanism related to the pandemic.
The details of the TPI are described in a separate press release to be published at 15:45 CET.
Key ECB interest rates
The Governing Council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022.
At the Governing Council’s upcoming meetings, further normalisation of interest rates will be appropriate. The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term.
Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.
As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.
Redemptions coming due in the PEPP portfolio are being reinvested flexibly, with a view to countering risks to the transmission mechanism related to the pandemic.
Refinancing operations
The Governing Council will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy. The Governing Council will also regularly assess how targeted lending operations are contributing to its monetary policy stance.
The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilizes at its 2% target over the medium term. The Governing Council’s new TPI will safeguard the smooth transmission of its monetary policy stance throughout the euro area.
The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting. This decision is based on the Governing Council’s updated assessment of inflation risks and the reinforced support provided by the TPI for the effective transmission of monetary policy. It will support the return of inflation to the Governing Council’s medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjust to deliver its inflation target in the medium term.
At the Governing Council’s upcoming meetings, further normalization of interest rates will be appropriate. The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term. In the context of its policy normalization, the Governing Council will evaluate options for remunerating excess liquidity holdings.
The Governing Council assessed that the establishment of the TPI is necessary to support the effective transmission of monetary policy. In particular, as the Governing Council continues normalizing monetary policy, the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries. The singleness of the Governing Council’s monetary policy is a precondition for the ECB to be able to deliver on its price stability mandate.
The TPI will be an addition to the Governing Council’s toolkit and can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area. The scale of TPI purchases depends on the severity of the risks facing policy transmission. Purchases are not restricted ex ante. By safeguarding the transmission mechanism, the TPI will allow the Governing Council to more effectively deliver on its price stability mandate.
In any event, the flexibility in reinvestments of redemptions coming due in the pandemic emergency purchase programme (PEPP) portfolio remains the first line of defence to counter risks to the transmission mechanism related to the pandemic.
The details of the TPI are described in a separate press release to be published at 15:45 CET.
Key ECB interest rates
The Governing Council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022.
At the Governing Council’s upcoming meetings, further normalisation of interest rates will be appropriate. The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over the medium term.
Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.
As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.
Redemptions coming due in the PEPP portfolio are being reinvested flexibly, with a view to countering risks to the transmission mechanism related to the pandemic.
Refinancing operations
The Governing Council will continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) does not hamper the smooth transmission of its monetary policy. The Governing Council will also regularly assess how targeted lending operations are contributing to its monetary policy stance.
The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilizes at its 2% target over the medium term. The Governing Council’s new TPI will safeguard the smooth transmission of its monetary policy stance throughout the euro area.
Euro Area Interest Rate:
OIL
Source: Trading Economics
Oil
extended losses for a third consecutive session on Friday, with WTI
crude bottoming around the $95-per-barrel mark, weighed down by
lingering fears of a demand-sapping global recession. Government data
indicated weakening US gasoline demand despite the peak summer driving
season, with aggressive rate hikes by major central banks triggering
slowdown concerns. Putting a floor under prices were fears of further
supply disruptions in an already tight market. The West is working on a
plan to impose a price cap on Russian crude to punish Moscow over its
invasion of Ukraine. On top of that, Biden failed to secure a pledge
from Arab leaders this week to pump more oil despite a top US energy
envoy indicating confidence that key producers have spare capacity and
are likely to boost supplies. Still, the US benchmark managed to post a
slight weekly gain.
Natural Gas
Sources: Trading Economics; Aljazeera
US
natural gas futures bounced back from intraday lows to a new 5-week
high of $8.1 per million British thermal units, on signs of
stronger-than-expected demand. The EIA’s weekly inventory report showed
utilities injected just 34 billion cubic feet (bcf) of natural gas into
underground storage last week, markedly below median market estimates of
a 47 bcf build. Record-setting heat waves in the US have been boosting
electricity demand to power air conditioning, which has prompted power
plants to burn more natural gas. Capping the upside momentum, Gazprom
restarted shipments to Germany through the key Nord Stream 1 pipeline on
Thursday after ten days of a maintenance-related shutdown.
Outlook:
The
European Commission has asked European Union member states to slash
their gas use by 15 percent over the coming months to ensure that a
complete cutoff of natural gas supplies by Russia to the 27-nation bloc
will not fundamentally disrupt industries next winter.
In a plan outlined on Wednesday, the Commission proposed that the period of reduced gas consumption last between August 1 and the end of March 2023.
In a plan outlined on Wednesday, the Commission proposed that the period of reduced gas consumption last between August 1 and the end of March 2023.
It
also asked for the power to impose mandatory reductions across the bloc
in the event of an EU-wide alert “when there is a substantial risk of a
severe gas shortage or an exceptionally high demand of gas occurs,
which results in a significant deterioration of the gas supply
situation”.
The need is high, said EU Commission President Ursula von der Leyen.
“Russia is blackmailing us. Russia is using energy as a weapon. And therefore, in any event, whether it’s a partial major cutoff of Russian gas or total cutoff of Russian gas, Europe needs to be ready,” von der Leyen said, describing a full cutoff of Russian gas flows to Europe as “a likely scenario”.
“We have to be proactive. We have to prepare for a potential full disruption of Russian gas,” she added. “That’s what we’ve seen in the past.”
EU member states will discuss the proposed measures at an emergency meeting of energy ministers on July 26. For them to be approved, national capitals would have to consider yielding their powers over energy policy to Brussels.
Wednesday’s proposal comes at a time when a blog post from the International Monetary Fund (IMF) has warned about the power Russian President Vladimir Putin could wield by weaponising energy exports and choking off the bloc.
“The partial shutoff of gas deliveries is already affecting European growth, and a full shutdown could be substantially more severe,” the IMFBlog warned. It added that gross domestic product (GDP) in member states such as Hungary, Slovakia and the Czech Republic could shrink by up to 6 percent.
Italy, which is already facing serious economic problems, “would also face significant impacts”.
The need is high, said EU Commission President Ursula von der Leyen.
“Russia is blackmailing us. Russia is using energy as a weapon. And therefore, in any event, whether it’s a partial major cutoff of Russian gas or total cutoff of Russian gas, Europe needs to be ready,” von der Leyen said, describing a full cutoff of Russian gas flows to Europe as “a likely scenario”.
“We have to be proactive. We have to prepare for a potential full disruption of Russian gas,” she added. “That’s what we’ve seen in the past.”
EU member states will discuss the proposed measures at an emergency meeting of energy ministers on July 26. For them to be approved, national capitals would have to consider yielding their powers over energy policy to Brussels.
Wednesday’s proposal comes at a time when a blog post from the International Monetary Fund (IMF) has warned about the power Russian President Vladimir Putin could wield by weaponising energy exports and choking off the bloc.
“The partial shutoff of gas deliveries is already affecting European growth, and a full shutdown could be substantially more severe,” the IMFBlog warned. It added that gross domestic product (GDP) in member states such as Hungary, Slovakia and the Czech Republic could shrink by up to 6 percent.
Italy, which is already facing serious economic problems, “would also face significant impacts”.
Earnings Season: Netflix
Source: The New York Times, CNBC
The
streaming giant said in its earnings report on Tuesday that it lost
nearly one million subscribers in the second quarter. That’s the largest
subscriber defection in company history, but far short of the two
million it forecast during its dismal first quarter report in April.
When Netflix announced that it lost 200,000 subscribers in the first quarter and expected to lose many more in the second, it suggested to many in Hollywood and on Wall Street that the halcyon days of endless growth in the streaming business had come to an end.
The company still had a rough three months, but its revenue did grow 9 percent to $7.9 billion, a number that would have been higher had the value of the dollar not pushed down the value of currencies around the globe. Overall, Reed Hastings, a Netflix co-chief executive, called it “less bad results.” He added that “it’s tough losing one million subscribers and calling it a success.”
When Netflix announced that it lost 200,000 subscribers in the first quarter and expected to lose many more in the second, it suggested to many in Hollywood and on Wall Street that the halcyon days of endless growth in the streaming business had come to an end.
The company still had a rough three months, but its revenue did grow 9 percent to $7.9 billion, a number that would have been higher had the value of the dollar not pushed down the value of currencies around the globe. Overall, Reed Hastings, a Netflix co-chief executive, called it “less bad results.” He added that “it’s tough losing one million subscribers and calling it a success.”
The
company warned of the strengthening U.S. dollar’s impact on its
international revenue, which makes up 60% of its top line. The dollar’s
surge comes as the Federal Reserve hikes interest rates to fight
four-decade-high inflation in the United States.
Last quarter, Netflix addressed its slowing revenue growth, which it said was the result of competition, account sharing and other factors such as sluggish economic growth and the war in Ukraine.
“We’ve now had more time to understand these issues, as well as how best to address them,” the company said.
It remains focused on content, offering big-budget films on its service rather than in theaters, and providing all episodes of new shows all at once for subscribers to binge. The company touted “Stranger Things” season four as a big win for the brand. Not only did it top viewership records for the company, but it was also nominated for several 2022 Emmys.
Netflix’s shares, which traded around $700 last year, closed Tuesday at just above $200.
Last quarter, Netflix addressed its slowing revenue growth, which it said was the result of competition, account sharing and other factors such as sluggish economic growth and the war in Ukraine.
“We’ve now had more time to understand these issues, as well as how best to address them,” the company said.
It remains focused on content, offering big-budget films on its service rather than in theaters, and providing all episodes of new shows all at once for subscribers to binge. The company touted “Stranger Things” season four as a big win for the brand. Not only did it top viewership records for the company, but it was also nominated for several 2022 Emmys.
Netflix’s shares, which traded around $700 last year, closed Tuesday at just above $200.
Earnings Season: Tesla
Sources: CNBC, MarketWatch
Tesla’s margins shrink despite ’embarrassing’ price increases, putting Elon Musk in a tough spot.
Earnings per share (EPS): $2.27 (adjusted) vs $1.81 expected
Revenue: $16.93 billion, vs. $17.1 billion expected
Automotive gross margin came in at 27.9%, down from 32.9% last quarter and 28.4% a year ago, impacted by inflation and more competition for battery cells and other components that go into electric vehicles. Automotive revenues made up $14.6 billion of the company’s total, with $1.47 billion coming from services and other revenue, and $866 million from the company’s energy segment.
“I
do want to emphasize this is obviously subject to force majeure, things
outside of our control,” Musk said. “The past two years have been quite
a few force majeures, and it’s been kind of supply-chain hell for
several years.”
Musk
is promising to start producing the Cybertruck, an electric pickup
truck, next year with a starting cost of $40,000, according to the Kelly
Blue Book, and a top cost of $70,000. But the version of that vehicle
that Tesla showed off three years ago seems unlikely to make money at
those prices, which were promised to consumers who plunked down $100
apiece by the thousands for the right to buy the vehicle. Now, Musk will
have to decide whether to increase prices on a long-awaited and delayed
product or suffer the wrath of Wall Street for poor margins.
Earnings Season: Snapchat
Sources: CNBC
- Earnings per share: A loss of 2 cents, adjusted, versus expected loss of 1 cent, according to a Refinitiv survey of analysts
- Revenue: $1.11 billion versus $1.14 billion expected, according to Refinitiv
- Global Daily Active Users (DAUs): 347 million versus 344.2 million expected, according to StreetAccount
In its investor letter, Snap said it’s not providing guidance for the third quarter because “forward-looking visibility remains incredibly challenging.” The company said that revenue so far in the period is “approximately flat” from a year earlier. Analysts were expecting sales growth of 18% for the third quarter, according to Refinitiv.
“We are not satisfied with the results we are delivering, regardless of the current headwinds,” the company said in the letter.
It’s the latest chapter in a tough year for Snap, whose stock has lost almost two-thirds of its value in 2022. In May, Snap said it wouldn’t meet the second-quarter guidance it set the prior month, leading to a 43% plunge in the share price. At the time, Snap cited a macroeconomic environment that was deteriorating much faster than expected.
Shares of Snap closed down 39% Friday, a day after the company reported disappointing second-quarter results.
Snap missed Wall Street expectations on the top and bottom lines and said it plans to slow hiring. The social media company attributed its results to a challenging economy, slowing demand for its online ad platform, Apple’s 2021 iOS update and competition from companies like TikTok.
Snap missed Wall Street expectations on the top and bottom lines and said it plans to slow hiring. The social media company attributed its results to a challenging economy, slowing demand for its online ad platform, Apple’s 2021 iOS update and competition from companies like TikTok.
Markets
Source: Trading Economics
The
Dow Jones lost around 150 points on Friday, while the S&P 500 and
the Nasdaq 100 dropped 0.9% and 1.9%, respectively, as investors
digested a slew of disappointing corporate earnings reports and weak
economic data. Twitter reported weaker-than-expected earnings, revenue,
and user growth for the second quarter. A dismal outlook from the social
media giant followed disappointing results from Snap, which tumbled
almost 40%, sending shockwaves through other social media companies,
including Meta and Pinterest. Verizon dropped around 7% after missing
Wall Street's estimates while offering weak guidance. On the data front,
the US business activity contracted in July for the first time in
nearly two years, pressured by a sharp slowdown in the service sector,
intensified worries over the economic outlook. Still, the Dow rallied
almost 2% for the week, while the S&P 500 and the Nasdaq
outperformed by adding 2.5% and 3.5%, respectively.
Overall, a green week in the worldwide stock markets, as seen below:
Crypto
Source: Trading Economics
Following the same positive trend as the stock market, cryptocurrencies are in the green for the week.
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