Macro

UK: Encouragingly, the UK Business Sentiment Index showed a positive score for the three months leading to July.

EU: Data released this week indicated a slowdown in regional business activity, with the Flash Eurozone Composite PMI Index falling to an eight-month low of 48.9 in July. At a country level, both France and Germany recorded weaker Purchasing Managers’ Index (PMI) readings for the month.

In Germany, the IFO Business Climate Index declined for the third consecutive month to 87.3 in July. The ECB raised interest rates to a record-equaling high of 3.75%, citing concerns about sustained euro area inflation. However, the bank also hinted at keeping an open mind about future rate decisions, possibly signalling a pause in monetary tightening. Annual inflation in the euro area decreased to 5.5% in June, but it remains well above the ECB’s target of 2%. Preliminary July inflation readings at the country level showed mixed results.

US: Sentiment received a boost from generally positive economic readings, particularly on inflation. Stocks opened higher following news that the Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, rose by 0.2% in June, the slowest increase since September 2021. Additionally, the Employment Cost Index rose by 1.0% in the second quarter, the smallest increase in two years. Data from the week suggested that the economy might experience a soft landing and avoid a recession despite increasing borrowing costs. The Commerce Department reported that the economy expanded at a year-over-year pace of 2.4% in the quarter, higher than consensus expectations. Durable goods orders and personal spending also showed positive growth and pending home sales rose unexpectedly. The Fed announced a 0.25% increase in the federal fund’s target rate, with expectations growing that they may halt rate hikes for the year. In his post-meeting press conference, Fed Chair Jerome Powell acknowledged the “restrictive” monetary policy’s impact on economic growth and inflation but emphasised that further rate changes would be guided by incoming data.