Investment Institute
Weekly Market Update

Take Two: US GDP revised up; ECB minutes show inflation fears as euro falls

  • 26 August 2022 (3 min read)

What do you need to know?

The US economy shrank by less than initially estimated during the second quarter (Q2), contracting by 0.6% rather than 0.9%. Consumer spending and private inventory investments were revised up, but the figures confirmed two consecutive quarters of contraction – a so-called technical recession. Separately, a flash US Purchasing Managers’ Index fell to 45 in August from 47.7 in July, a 27-month low, as business activity slowed. However, President Joe Biden has recently rejected claims the US economy is in recession, arguing there are signs of progress.

Around the world

High inflation, slower economic activity and supply bottlenecks resulting from the Ukraine crisis are “significantly clouding the outlook for the second half of 2022 and beyond”, according to the minutes of the latest European Central Bank (ECB) meeting. However, the reopening of the economy after COVID-19-driven lockdowns and a strong labour market are positive tailwinds. The ECB raised rates by 50 basis points (bp) in July, though some members of the monetary policy committee supported a 25bp hike “with recession risks looming”. There were concerns the depreciation of the euro could add to inflation – last week, it fell to a 20-year low against the US dollar before regaining some ground.

Figure in focus: 100%

China’s biggest stock exchange has tightened its rules around green bonds, in a bid to clamp down on ‘greenwashing’ and boost investors’ confidence in their credibility. The Shanghai Stock Exchange will require 100% of green bond proceeds to be allocated to green projects – up from a previous threshold of 70%, according to reports. The move is in line with the new China Green Bond Principles that the country’s securities regulator launched at the end of July. Some $109.5bn of Chinese green bonds were issued last year, but only around 60% was aligned with global green bond standards, according to the Climate Bonds Initiative.

Words of wisdom: OPEC+

An alliance of crude oil producing nations and an extension of the Organization of the Petroleum Exporting Countries (OPEC). Representing over 90% of the world’s proven oil reserves, OPEC+ co-ordinates petroleum policies amongst participating nations and aims to maintain stability within global oil markets. Oil prices spiked almost 4% last Tuesday following suggestions by Saudi Arabia’s energy minister that OPEC+ could cut output to support prices, then fell later in the week on concerns that rising US interest rates would weaken demand.

What’s coming up?

Tuesday sees a spate of Eurozone indicators released, including August’s Economic, Industrial and Services Sentiment measures as well as the month’s final Consumer Confidence gauge. The bloc follows on Wednesday with flash Inflation data for August while India and Canada’s second quarter economic growth numbers are also reported. On Thursday, Purchasing Managers’ Indices for China, Japan, the Eurozone, Canada and the US – as well as Eurozone July unemployment numbers - are released. On Friday, the US reports its latest job numbers.  

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