Inflation in the UK hit a new record. Eurozone GDP data is disappointing

The US Retail Sales data on Wednesday were good, which helped ease fears of an economic slowdown. Minutes from the Federal Reserve’s July meeting showed Fed officials were concerned the US Central Bank might raise rates too much as part of its commitment to control inflation. Some Fed participants noted that interest-rate-sensitive sectors were starting to show signs of slowing and that some felt there was a risk of over-tightening. After the minutes were released, the probability of a 75 basis point hike in September fell to 40% from 52% earlier Wednesday, with a 50 basis point hike now seen as a 60% probability.

The Eurozone economy grew by 0.6% in the second quarter, a strong sign of slowing growth since the previous quarter’s growth of 3.9%. At the same time, the statistical office revised downward its estimates of GDP growth for 19 Eurozone countries. Despite the worsening of the estimates, the growth rate of the Eurozone economy in quarterly terms is the highest in 3 quarters due to the easing of Covid restrictions and the active tourist season in the southern European countries. The Spanish and Italian economies grew by 1.1% and 1%, respectively, last quarter, while France gained 0.5%.

The UK Consumer Price Index rose to 10.1% in annual terms (forecast 9.8%) in July, its highest level in 40 years. The Core Consumer Price Index (excluding energy and food) rose to a 6.2% annualized rate, up from 5.8% in June. The Bank of England warned that inflation would rise until October, with a projected peak of around 13%.

The Financial Times reported that European banks followed US banks in resuming operations with Russian bonds. Such banks as UBS, Barclays, and Deutsche Bank again allowed their clients to sell Russian bonds following the similar actions of the American JPMorgan, Bank of America, Jefferies, and Citigroup. All banks mentioned by the Financial Times declined to comment officially. Still, people briefed on their actions said the decisions to resume operations with Russian debt were not due to a desire to make a profit but rather to help clients reduce risks under sanctions rules.

The situation in the oil market remains tense. Oil crude reserves data yesterday showed a sharp 7.1 million barrel decline over the past week, while open questions remain about the Iran deal, a possible production build-up by Saudi Arabia, and fears of a possible global recession. Nor should we forget about sanctions on Russia and the energy crisis in Europe. Too many catalysts affect oil prices. Also, yesterday it became known that despite the sanctions, Russia began to gradually increase oil production, as Asian countries increased their purchases.

Gold prices fell on Wednesday after the July FOMC protocol showed that most members support further rate hikes to reduce inflation. Although the central bank intends to eventually revise its pace of tightening, it indicated that it is likely to keep rates high until inflation is within the 2% target range.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 1.23%, Hong Kong’s Hang Seng (HK50) added 0.46%, and Australia’s S&P/ASX 200 (AU200) was up by 0.31% by the end of the day. But at the open on Thursday, Chinese and Hong Kong stocks were down sharply due to a drop in large real estate developers after unfavorable earnings warning from Country Garden Holdings. The developer showed weak quarterly results, losing more than 5%, while the company warned that profits would decline sharply. Country Garden’s warning points to new problems for China’s debt-laden real estate sector. A downturn in this sector could potentially spread to other aspects of the Chinese economy.

Australia’s labor market unexpectedly contracted in July. The number of people employed in the country fell by 40,900 in July, falling short of expectations of a 25,000 increase. Meanwhile, wages rose at an annualized rate of 2.6% in July, well below the annualized consumer price inflation rate of 6.1%. But the unemployment rate fell from 3.5% to 3.4%, the lowest level in 48 years. Analysts said the unexpected decline in the labor market is likely to force the Reserve Bank of Australia (RBA) to reconsider the monetary policy and be less aggressive in raising interest rates. Analysts now expect the bank to keep rates at 1.85% at a meeting in early September.