Global equities in euro terms are now almost 10% higher from their low of 20th June. Whilst this does make the year-to-date returns a little bit more palatable for investors, there is still likely to be some difficult investing terrain ahead. The ECB hiked back to the 0% level last week, but Friday’s PMI release shifted future rate expectations downwards. Therefore, despite a relatively surprising move higher in interest rates, bond yields moved lower (and prices higher) by the end of the week. This doesn’t match the conventional theory. However, this can be explained by the fact that investors shifted to the view that ECB will have to put the brakes on interest rates hikes as the spectre of a recession in the single currency bloc looms ever larger. A hiking cycle over before it even starts?


Overall, the higher rates cause ‘financial conditions’ to tighten further, with the aim of curtailing spending which should lower the demand driven variable of inflation. However, the efficacy of higher interest rates in helping to control supply driven inflation is less clear. For consumers, tracker and variable rate mortgages and personal loans are likely to shift upwards as a result. Whilst a very different interest rate and mortgage market the US this year is a useful case study – in the first week of January a 30-year fixed rate mortgage would have cost you 3.2%, whilst last week it stood at 5.5%. This increase in borrowing costs in borne out directly in the latest housing data (more below) with a predictable result. The Fed will shift rates higher again this week


For the week ahead, keep an eye out for earnings. Alphabet, Microsoft on Tuesday with Amazon, and a plethora of other big names later in the week.