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Investment Institute
Weekly Market Update

Take Two: ECB minutes reveal fear of entrenched inflation; OPEC+ to cut oil output

  • 10 October 2022 (5 min read)

What do you need to know?

The European Central Bank (ECB) feared that an expected economic slowdown in the Eurozone would be insufficient to curb price rises, and that inflation could become “self-reinforcing,” according to the minutes from its September rate decision. At last month’s meeting, the ECB increased interest rates by 75 basis points (bp); the market consensus is for another 75bp increase in October. The minutes highlighted expectations of “a period of stagnation around the turn of the year” followed by a likely recession next year. The final Eurozone composite Purchasing Managers’ Index (PMI) for September was revised down to 48.1, a 20-month low, driven by high inflation, economic uncertainty and weakening demand.

Around the world

The OPEC+ alliance of major oil producing nations agreed to cut output by two million barrels per day, more than expected, and the equivalent of 2% of global production. The group said the decision was made in response to rising interest rates in western economies amid weakening growth, but US President Joe Biden called the move “short-sighted” while war in Ukraine continues – White House officials raised the prospect of further releases from the US’ strategic oil reserves. News of the cut pushed oil prices higher last week; as of Friday morning Brent Crude was close to $95 per barrel, up from about $88 a week earlier.

Figure in focus: 52.2

Service sector activity returned to growth in Japan in September – the final services PMI was revised up to 52.2, compared to 49.5 in August – a reading above 50 indicates expansion. This three-month high likely reflects the easing of COVID-19 restrictions. However, high inflation and weakening demand from Japan’s trading partners saw the final manufacturing PMI fall to 50.8 in September from 51.5 the previous month. Meanwhile, a Bank of Japan survey showed worsening business sentiment among big manufacturers for a third straight quarter. To combat economic decline and a falling yen, Japanese Prime Minister Fumio Kishida announced a loosening of border policies in a bid to boost inbound tourism.

Words of wisdom:

USB-C: A style of cable connector used to power a variety of technology devices. The European Parliament agreed last week to establish USB-C as the universal charging method for all mobile phones, tablets and cameras, among other equipment, across the European Union. The rule, which still needs formal approval, comes into force from 2024 and will also apply to laptop computers from 2026. It is designed to reduce electronic waste – and is also predicted to save consumers up to €250m per year, but will force some technology firms to change their charging systems as a result.

What’s coming up

The UK publishes its latest unemployment figures on Tuesday followed by monthly GDP data for August on Wednesday, when the Eurozone releases its industrial production figures. The Federal Reserve publishes the minutes from its latest monetary policy meeting on Wednesday. The US announces its inflation numbers for September on Thursday, with China’s figures following on Friday, alongside the Eurozone trade balance data. The annual meetings of the International Monetary Fund and World Bank Group take place this week, while China’s 20th Party Congress, a five-yearly event, begins on Sunday.

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