In the ever-changing landscape of global economics, it is crucial to grasp the concept of global macro and its impact on financial markets. This article delves into the realm of global macro, shedding light on recent developments and critical factors influencing the decision-making process of central banks worldwide.
The US Federal Reserve (The Fed) paused its upwards trajectory in interest rate rises in July but warned that there could be further rate hikes in H2.
US Fed Funds Rate (%)
The European Central Bank (ECB) was more forthright, raising the repo rate by 25 basis points and cautioning the market that there were more rate rises to come. ECB president Christine Lagarde warned that there would be another 25-basis point rise in July.
ECB repo rate (%)
The Bank of England (BoE) will make its interest rate decision on Thursday 22 June and is likely to raise the bank rate by 25 basis points in an attempt to squeeze out the very rate of inflation in Britain.
Bank of England Prime Rate (%)
UK debt to GDP surpassed 100% for the first time since 1961. This puts not stark relief why it is so important for the BoE to curb inflation. The following graph from the Office for National Statistics (ONS) demonstrates how the UK compares with other European countries in this regard.
Inflation in the UK is proving to be very sticky, with consumer price inflation (CPI) remaining at an elevated level of 8.7% in May, unchanged from April. The graph below shows CPI, CPIH (CPI excluding housing costs) and OOH (Owner-Occupier Housing costs).
click to enlarge image
Although significantly below the peaks of last year, natural gas prices in Europe have surged in the past few weeks.
Natural gas futures in Europe jumped to as high as €50 per megawatt-hour, the highest in ten weeks after it was reported that the Netherlands will close Europe's largest gas site near the Groningen gas field due to the risks of earthquakes from October 1st.
European natural gas prices have been on the rise in the last two weeks as demand is expected to increase while the production in Norway, the biggest European supplier, was reduced. Several outages at Norwegian gas fields have been extended and works are set to continue into July.
Currently, Europe's gas storage is 72.6% full, and the European Union aims to achieve a storage inventory target of 90% by November 1.
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