Latest fraudulent alert - last updated on Apr 2023. To find out more information and how to protect yourself, please click here.

Investment Institute
Viewpoint Chief Economist

The Last One?

  • 24 July 2023 (5 min read)

  • Both Fed and ECB are highly likely to hike by 25 bps this week, we think for the last time for the Fed, while we remain more in the “September peak” camp for the ECB, despite some soothing words from hawks.
  • Spanish elections may not have brought much clarity, but the country’s underlying situation is robust enough to help it deal with, potentially, some more months of uncertainty.

The Fed is highly likely to hike by 25 basis point this week, but focus will be on the next steps. In the absence of new forecasts, it should be relatively easy for J. Powell to keep his hands free for September. After all, the June statement was already quite non-committal. We think July will mark the end of the Fed’s tightening cycle, but that remains conditional on the further accumulation of signs the US economy is slowing down.

We also think the ECB will hike by 25 bps this week, but to move more convincingly into data dependent mode – now that even hawks don’t want to take a September hike as a given - the central bank must alter its prepared statement to remove the notion that policy rate “will be brought” to sufficiently restrictive level. This would be taken as a major dovish shift by the market, and we think Lagarde will have to offset this by sending some hawkish messages in the Q&A. Looking ahead, there is still a key element missing for the Governing Council to stop hiking beyond July: an observable deceleration in core inflation, unlike in the US.

The BOE will have until August to decide on its next move. We must be cautious, but the better-than-expected inflation print for June could keep the next hike at 25 bps “only” and reduces the risk the BOE steers a lonely and painful tightening course beyond the summer.

With near complete results on Sunday night, it seems the right-wing block failed to reach a majority in parliament. Pedro Sanchez could in principle cut a deal with regional parties to stay in power, but this would put him in a fragile position and another election in a few months is a real possibility. We review the country’s underlying position and find it overall robust enough to deal with some months of uncertainty without too much market tension. 

Related Articles

Viewpoint Chief Economist

Draghi Captures the Zeitgeist

Viewpoint Chief Economist

Zoom on the Boom

Viewpoint Chief Economist

Postcard from Davos

    Disclaimer

    This website is published by AXA Investment Managers Asia Limited (“AXA IM HK”), an entity licensed by the Securities and Futures Commission of Hong Kong (“SFC”), for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy, sell or enter into any transactions in respect of any investments, products or services, and should not be considered as solicitation or investment, legal, tax or any other advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities under any applicable law or regulation. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation, investment knowledge or particular needs of any particular person and may be subject to change at any time without notice. Offering may be made only on the basis of the information disclosed in the relevant offering documents. Please consult independent financial or other professional advisers if you are unsure about any information contained herein.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee such opinions, estimates and forecasts made will come to pass. Actual results of operations and achievements may differ materially. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Information herein may be obtained from sources believed to be reliable. AXA IM HK has reasonable belief that such information is accurate, complete and up-to-date. To the maximum extent permitted by law, AXA IM HK, its affiliates, directors, officers or employees take no responsibility for the data provided by third party, including the accuracy of such data. This material does not contain sufficient information to support an investment decision. References to companies (if any) are for illustrative purposes only and should not be viewed as investment recommendations or solicitations.

    All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and that past performance is no guarantee of future returns, investors may not get back the amount originally invested. Investors should not make any investment decision based on this material alone. 

    Some of the services listed on this Website may not be available for offer to retail investors.

    This Website has not been reviewed by the SFC. © 2023 AXA Investment Managers. All rights reserved.