FED, ECB and British Gas in Focus

Profits Soar British Gas

British Gas have released their latest half-year profit figures which shows that the energy giant racked up profits of £969m over the six-month period. This comes as the energy price cap being raised allowed the company to charge households more for energy bills. Their latest profits represent just shy of a 900% increase from the same period last year, when energy prices soared following the Russian invasion of Ukraine, but the price cap limited the amount they could charge households and pass on rising costs to consumers. Their parent company Centrica reported a H1 profit of £6.5bn for, compared against a £1.1bn loss for H1 2022. Chris O’Shea, Centrica’s CEO stated that “nothing is more important than delivering for our customers”. O’Shea recently accepted a £4.5m pay packet.

Markets Await US GDP

At 13:30 today, markets will be focusing on the release of the latest US Q2 GDP print. Markets are currently predicting a figure of 1.8% growth on an annualised basis for the second quarter of 2023. If realised, this would mark the slowest rate of growth in a year, as investors continue to monitor the health of the US economy given tightening fiscal and monetary conditions.

Focus Turns to Frankfurt

At 13:15 today, Frankfurt will be conducting their latest rate decision, with markets forecasting the ECB to raise rates by 25bps. If enacted this would bring their benchmark policy rate to 4.25%, brining borrowing rates to their highest level since October 2008. Their policy meeting later today follows 400 basis points of monetary tightening since July 2022, as inflation across the Eurozone hit record highs. With headline CPI across the Eurozone presently standing at 5.5%, inflation is now at its lowest level since January 2022, though this continues to concern policy makers, not least because of core consumer prices rising 20bps between May and June. With money markets pricing in around a 97% chance of a 0.25% increase today, markets are also pricing in around a 50% chance of a further 25bps hike in October.

As alluded to, Eurozone inflation showed signs of decelerating to its lowest level since January 2022, though core inflation came above preliminary estimates remaining close to all-time highs. With energy prices continuing to subside, headline inflation fell 60bps from May’s figure of 6.1%, marking the second consecutive fall and a considerable deceleration from October’s all time high of 10.6%.

Last month at the ECB’s symposium in Sintra, Portugal, Lagarde indicated that Frankfurt would likely conduct further tightening. Here she stated that “if the baseline stands, we know we will likely hike again in July”. Over the course of the symposium, Frankfurt also pushed back against market projections of H1 2024 cut and markets continue to question whether the ECB will raise rates in September too. Regarding inflation, Lagarde cautioned that “we are not seeing enough tangible evidence of falling underlying inflation”.