Skip navigation Scroll to top
Scroll to top

LGT Navigator: ECB faces difficult balancing act

July 20, 2022

Inflation in the eurozone rose again to a record level in June. Now investors are speculating that the European Central Bank could raise key interest rates by 50 basis points on Thursday. This also boosted the euro, which strengthened against the US dollar.


After a weak start to the week, US stock markets have rebounded on Tuesday. The S&P 500 climbed +2.8% and the Dow Jones gained +2.4%. The Nasdaq Composite even rose +3.1%. Better-than-expected corporate results contributed to the good mood. 

In Asia, stock markets follow the strong guidance from the US on Wednesday. In Tokyo, the Nikkei gains +2.5%. In Hong Kong, the Hang Seng Index advanced +1.6% and the Shanghai Composite gained +0.7%.

ECB faces a dilemma

The countdown to the European Central Bank's (ECB) monetary policy decision is on. Tomorrow, Thursday, the monetary authorities will meet, and it is considered certain that they will increase interest rates for the first time in eleven years. The question now is whether the ECB will hike rates by 25 or 50 basis points. Bloomberg reported on Tuesday that the central bank was considering an upward move of 50 basis points in view of high inflation, citing well-informed circles. Already last week, the central bank governors of various member countries have argued for a significant rate hike. 

So far, there has been a broad consensus in financial markets that the ECB will only raise key interest rates by 0.25 percentage points, and it remains to be seen whether the hawkish voices will prevail on Thursday. To be sure, prices in the euro area are currently rising faster than at any time since the currency area came into existence. Moreover, the ECB is lagging behind other major central banks, some of which initiated the interest rate turnaround months ago. But at the same time, the risk of a recession in the euro area is rising and is likely to be exacerbated if Russia cuts energy supplies. The International Monetary Fund (IMF) warns that such a scenario would threaten severe recessions, especially in Eastern Europe and Italy. It will therefore be crucial whether and to what extent Moscow will restart the Nord Stream 1 gas pipeline once the maintenance work currently underway is completed. If everything goes according to plan, the pipeline will again supply natural gas to Europe from Thursday. Investors are therefore anxiously waiting to see whether and how the ECB will succeed in this balancing act.

Meanwhile, the prospect of rising interest rates is supporting the euro. Against the US dollar, the common currency climbed on Tuesday to USD 1.0232 and thus increased in price by just under +1%. Last week, the euro was temporarily trading below parity to the US dollar.

Price growth in the eurozone accelerates

Inflation in the euro zone again reached a record level in June. Thus, consumer prices rose by +8.6% compared to the same month last year, as reported by the statistics office Eurostat on Tuesday. Thus, a first estimate was confirmed. In the previous month, inflation was +8.1%. The price increase was once again driven by rising energy prices, which have increased by more than 40% year-on-year. However, food and beverages also became significantly more expensive. If volatile energy and food prices are excluded, horseradish inflation came to +3.7%, after +3.8% in May.

France wants to nationalize power company

The French state wants to fully take over the national power company EDF for EUR 9.7 billion to ensure the expansion of nuclear power in the country. The government, which already holds about 84% of EFD, plans to offer EUR 12.00 per share, the Economy Ministry said on Tuesday. France is relying mainly on nuclear power to ensure energy security and reduce CO2 emissions. However, to be able to make this offer at all, the National Assembly must provide additional funding. For this, the government of President Emmanuel Macron is dependent on votes from the opposition. The parliamentary debate is scheduled for this week.



Economic Indicators July 20

MEZ Country Indicator Last period
08:00 UK Consumer price index (June, y/y) +9.1%
16:00 US Existing Home Sales (June, m/m) -3.4%


Earnings Calender July 20

Country Company Period
NL Akzo Nobel Q2
US Biogen Q2
CH Georg Fischer Q2
US Tesla Q2
CH Valora Q2


LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.


Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail:
Source: LGT Bank (Switzerland) Ltd.


Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is intended only for your information purposes. It is not intended as an offer, solicitation of an offer, or public advertisement or recommendation to buy or sell any investment or other specific product. The publication addresses solely the recipient and may not be multiplied or published to third parties in electronic or any other form. The content of this publication has been developed by the staff of LGT and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its correctness, completeness and up-to-date nature. The circumstances and principles to which the information contained in this publication relates may change at any time. Once published information is therefore not to be interpreted in a manner implying that since its publication no changes have taken place or that the information is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax or other matters of consultation, nor should any investment decisions or other decisions be made solely on the basis of this information. Advice from a qualified expert is recommended. Investors should be aware of the fact that the value of investments can decrease as well as increase. Therefore, a positive performance in the past is no reliable indicator of a positive performance in the future. The risk of exchange rate and foreign currency losses due to an unfavorable exchange rate development for the investor cannot be excluded. There is a risk that investors will not receive back the full amount they originally invested. Forecasts are not a reliable indicator of future performance. In the case of simulations the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

The commissions and costs charged on the issue and redemption of units are charged individually to the investor and are therefore not reflected in the performance shown. We disclaim, without limitation, all liability for any losses or damages of any kind, whether direct, indirect or consequential nature that may be incurred through the use of this publication. This publication is not intended for persons subject to a legislation that prohibits its distribution or makes its distribution contingent upon an approval. Persons in whose possession this publication comes, as well as potential investors, must inform themselves in their home country, country of residence or country of domicile about the legal requirements and any tax consequences, foreign currency restrictions or controls and other aspects relevant to the decision to tender, acquire, hold, exchange, redeem or otherwise act in respect of such investments, obtain appropriate advice and comply with any restrictions. In line with internal guidelines, persons responsible for compiling this publication are free to buy, hold and sell the securities referred to in this publication. For any financial instruments mentioned, we will be happy to provide you with additional documents at any time and free of charge, such as a key information document pursuant to Art. 58 et seq. of the Financial Services Act, a prospectus pursuant to Art. 35 et seq. of the Financial Services Act or an equivalent foreign product information sheet, e.g. a basic information sheet pursuant to Regulation EU 1286/2014 for packaged investment products for retail investors and insurance investment products (PRIIPS KID).