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Inflation risks cloud ECB rate decision and tech earnings set to test markets

The European Central Bank (ECB) will announce its monetary policy decision today, facing a looming threat of persistent inflation as geopolitical tensions increase. Markets traded cautiously midweek as the Iran war and AI investments remain the main themes shaping equity markets. In the face of quarterly earnings from Google parent Alphabet, IBM, or electric vehicle maker Tesla, Wall Street closed lower on Wednesday, while Asian stock exchanges traded higher today.

  • Date
  • Auteur Alessandro Fezzi, Content & Publications
  • Temps de lecture 5 minutes

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Energy prices have once again shot higher this week following renewed US-Iran hostilities around the Strait of Hormuz, complicating the European Central Bank’s policy decision this afternoon. The ECB raised its deposit rate by 25 basis points to 2.25% last month after euro-area inflation reached 3.2% in May, before easing to 2.8% in June despite an 8.7% increase in energy costs. The price of oil is particularly critical for the eurozone economy, which imported 57% of its energy needs in 2024, according to the most recent available data from Eurostat. Policymakers must now make their decision without the latest inflation and growth figures. The ECB will be cautious that an overly restrictive monetary policy stance could tip the eurozone economy into recession after contracting by 0.2% year-on-year in the first quarter of 2026.

Asian shares gain on Alphabet AI spend

Asian equities rose on Thursday as Alphabet’s additional USD 15 billion annual capital-spending plan strengthened expectations for demand for artificial intelligence infrastructure. South Korea’s KOSPI gained 3%, supported by advances in memory-chip makers SK Hynix and Samsung Electronics, while the Nikkei 225 rose 0.4% and Hong Kong’s Hang Seng climbed 1.3%. Oil prices reached six-week highs after Houthi attacks on Saudi tankers heightened supply-disruption concerns, limiting broader risk appetite and raising inflation worries. Australia added 76,300 jobs in June, far exceeding expectations, while unemployment remained at 4.4%, increasing expectations of a Reserve Bank of Australia rate rise later this year.

US stocks dip before tech earnings

US equities edged lower on Wednesday as investors awaited quarterly results from technology heavyweights Alphabet, Tesla, IBM and Texas Instruments. The Nasdaq 100 fell 0.5% to 28,998.10 points, after rising nearly 2% on Tuesday, while the S&P 500 lost 0.1% to 7498.96 points and the Dow Jones Industrial Average was little changed at 52,218.58 points. AT&T rose 3.5% after stronger-than-expected mobile customer additions. After markets closed, Alphabet shares slid 3% in extended trading after the Google parent lifted its forecast for 2026 capital expenditures to as high as USD 205 billion, pointing to strong artificial intelligence demand. The increase comes as investors have grown more cautious in recent months about hyperscalers’ spending around the AI effort.

Oil rises as Strait of Hormuz tensions persist

Brent crude rose around 4% to USD 94.20 per barrel on Wednesday, while US West Texas Intermediate gained 3.8% to USD 87.56, after US forces conducted an eleventh consecutive night of strikes against Iran. US Secretary of State Marco Rubio said Iran was not engaging seriously in talks and accused Tehran of seeking control over the Strait of Hormuz, a crucial route for energy exports. Continued disruption has heightened supply concerns and revived fears that higher energy costs could intensify inflationary pressures.

US targets generic drug imports

US President Donald Trump announced on Tuesday that the US will impose a 100% tariff on imported generic medicines from 2028, seeking to encourage domestic manufacturing. Generic pharmaceuticals will remain exempt for two years before the levy takes effect and is subsequently set to rise to 200%. Companies investing in US production facilities may avoid the tariff, while manufacturers agreeing to the administration’s "most favoured nation" pricing policy could also qualify for exemptions.

UK inflation reaches 14-month low

UK consumer-price inflation slowed to 2.6% in June from 2.8% in May, reaching its lowest level in 14 months, data released on Wednesday showed. The decline was driven by a 3.1% monthly fall in petrol and diesel prices, while food and drink inflation eased to 1.7%. Core inflation held at 2.6% and services inflation edged down to 3.6%. The Bank of England is expected to leave its benchmark rate at 3.75% next week, although inflation could exceed 3% in September as higher energy costs feed through.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from BNP Paribas, Carrefour, Comcast, Deutsche Börse, Freeport-McMoRan, Honeywell, Intel, Lockheed Martin, Nestlé, Nokia, Roche, RTX, SAP, STMicroelectronics, T-Mobile US, Thermo Fisher Scientific, TotalEnergies and Union Pacific.

Economic data in focus: European Central Bank interest rate decision (14:15), US weekly initial jobless claims (14:30), Canadian retail sales (14:30).

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