Stock prices in Europe in early July hovered around the closing levels on the last day of June. However, it should be remembered that these are quite low levels, in the case of the Dax index almost the lowest since November 2020.
Investors will see more economic data, while fears of a recession may increase. At this point, everyone seems to be watching the statements of the representatives of the European Central Bank, as the ECB is due to start raising interest rates for the first time in 11 years at the July meeting. There is still speculation about the scale of this increase, whether it will be 25 or maybe 50 basis points.
The data on inflation in the euro zone released today leave no illusions that interest rates have a chance to rise quickly. According to preliminary estimates, the annual inflation rate in the euro area rose to a record 8.6% in June from 8.1% in May. The data exceeded market expectations at 8.4%, strengthening arguments for an ECB rate hike in July. Energy prices continued to rise - 41.9%compared with 39.1%in May; food, alcohol and tobacco - 8.9%t vs 7.5%. Excluding energy, inflation also rose to 5% but the core inflation, which excludes the cost of energy, food, alcohol and tobacco, fell to 3.7%. from 3.8%. On the one hand, prices are rising fast in the euro area, and the peak of inflation is not visible, on the other hand, the activity of the industrial sector is the weakest in two years - according to the PMI indices.
The ECB can raise interest rates faster because the mechanism to protect the peripheral countries of the euro area is already in force. Previously, it was feared that an increase in interest rates on Italian or Spanish bonds would cause big problems for the entire monetary union. Hence, the ECB is starting to buy bonds of countries such as Italy, Spain, Portugal and Greece from some of the proceeds it will receive from maturing German, French and Dutch debt to reduce credit spreads, Reuters reported.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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