ADVANCED ECONOMIES
EUROPEAN UNION
Choosing growth, slowly: carbon and banking editions. The European Commission (EC) has proposed to give polluting industries more time and funding to decarbonize, while keeping the target of 90% emissions reduction by 2040. Steelmakers, chemical producers and power generators would be able to benefit from carbon-emission allowances until 2048 (instead of 2039). Governments are encouraged to raise the share of the carbon allowances proceeds used to help polluting industries decarbonize to 50%, from 5% currently. The EC simultaneously unveiled an Electrification Action Plan seeking to lift electricity's share of final energy consumption from 23% to 46% by 2040. Meanwhile, in its Report on bank competitiveness, the EC outlines a strategic direction to strengthen Europe’s banking sector and support growth. Three main objectives: 1/ fostering market integration. Cross-border banking groups could be allowed to use capital and liquidity more efficiently across the EU, along with a replacement of the 2015 EDIS proposal with a simpler mechanism built on existing safety nets. 2/ implementing Basel III standards while better reflecting the specificities of the EU banking sector and preserving an international level playing field. 3/ simplifying the regulatory framework, notably with respect to the number of capital buffers. This report will be followed by a legislative package in Q1 2027.
EUROZONE
ECB expected to hold this week. All 41 respondents in a Bloomberg survey of economists predict no change at the July 23 ECB meeting. Most anticipate a final 25bp hike to 2.5% in September. We agree. Industrial production edged down 0.2% m/m in May but continued to rise on a three-month moving-average basis, with capital goods output still increasing strongly and intermediate goods showing signs of bottoming out. Coming up: ECB meeting, new car registrations for June, flash July PMIs (Friday).
- France: OATs on election watch. Over the past week, the combination of the resumption of hostilities in the Gulf and French political news has led OATs to underperform global bonds: the French 10-year rate has risen by 24 bps to 3.96%, a level not seen since 2009. The spread with Germany, at 80 bps, has returned to the upper end of the range observed since the 2024 National Assembly dissolution. The extra cost of debt service is expected to account for 60% of the very limited increase in nominal spending in the 2027 budget (near 2x more than the increase in defence spending).
- Franco-German summit: seeking new common ground. Following their meeting in Brühl on Friday, President Macron and Chancellor Merz announced they had tasked relevant ministers (finance, economy and foreign affairs) to come up with a common roadmap by September for dealing with overwhelming Chinese import pressure. Coming up: INSEE business confidence (Thursday).
- Germany: Wholesale prices surprised to the downside in June, falling 0.7% m/m against expectations of a marginal increase (+4.9% y/y, down from 5.9% the previous month). This was fueled by decreasing energy and agri-food costs, although prices for machinery, capital equipment, and consumer goods remained on an upward trend.
- Italy: Record trade surplus of +EUR 4.8 bn in May. Excluding energy, the surplus amounted to +EUR 10.5 bn. Exports grew by 4.1% y/y, more to non-EU countries (+6.8% y/y) than EU countries (+1.7% y/y).
UNITED KINGDOM
Growth returns as a new Cabinet takes office. GDP rose by 0.1% m/m in May, vs. stagnation expected, following a 0.1% decline in April. It was driven by the services sector (+0.3%), notably medical R&D and retail sales. By contrast, construction fell by 0.8% and industrial production by 0.5% — its first monthly drop since January. In the industrial sector, slight gains in manufacturing (+0.1%) were offset by a slump in crude petroleum and natural gas extraction (-4.8%), hitting its lowest level since records began in 1990. Andy Burnham has taken over from Keir Starmer as Prime Minister today. He has vowed to be “pro-business”, decentralize decision-making, adhere to the fiscal rules set by the previous Chancellor, and deliver “distinctly Labour” policies. Bond markets are watchful, with 10-year yields on Gilts 100 bps above those on OATs despite a debt/GDP ratio lower by over 20 percentage points. Coming up: May labour market statistics (Tuesday), June inflation (Wednesday), June retail sales, July BoE Decision Makers Panel inflation survey (Friday).
UNITED STATES
Inflation relief but no “mission accomplished”. US consumer prices fell 0.4% m/m in June — the first decline since 2020 — dragged down by the largest drop in gasoline prices since 2022. Core CPI was flat on the month. Producer prices undershot expectations as well: PPI fell -0.3% m/m in June, a sharp reversal from +0.6% in May, and slowed to +5.5% y/y, as well as core PPI (ex-food & energy): +0.2% m/m, +4.7% y/y. Nonetheless, Fed Chair Warsh explicitly told Congress during the regular twice-yearly testimony that there were no grounds to declare “mission accomplished”, and multiple other FOMC members expressed either willingness or readiness to raise interest rates. Meanwhile, activity remains solid: Fed Beige book confirmed activity is rising moderately across nearly all sectors and Fed districts, as did the NY and Philadelphia manufacturing surveys. Small business optimism (NFIB) rose to a 4-month high. Publicly held US federal debt surpassed 100% of GDP for the first time since 1946.
Tariffs return. This week, the US imposed a 25% tariff on goods imports from Brazil under Section 301 of the 1974 Trade Act targeting unfair practices. A key one in scope for USTR is Brazil’s instant payment system PIX, owned by the central bank, which is accused of taking business away from US credit card companies. This is likely the first in a new round of tariff announcements as the “Section 122” tariffs — a temporary 10% universal tariff introduced to replace those that had been declared unlawful by the Supreme Court — are set to expire on July 24.
JAPAN
High inflation expectations and policy support for the Yen. A BoJ survey showed households' average inflation expectations (“price level over the next five years”) rising to 10.8%, the highest since 2006, even as the median measure stayed unchanged at 5.0%. Industrial production remained soft in May (+0.1% m/m but -2.1% y/y), though output of electronic parts and devices rose strongly again (+1.2% m/m, +14.2% y/y). Finance Minister Satsuki Katayama renewed her encouragements to the Government Pension Investment Fund to raise its holdings of domestic financial assets and hinted at including government bonds in the tax-free Nippon Individual Savings Account programme; both measures will be supportive of the yen. Upcoming: June inflation (Friday).
EMERGING ECONOMIES
ASIA
China: Q2 GDP disappoints; exports surge. Real GDP growth slowed more than expected, reaching +4.3% y/y in Q2 2026 (+0.9% q/q) vs. +5% y/y in Q1 (+1.3% q/q). Industrial production growth slowed in Q2 but rebounded slightly in June (+5.3% y/y) after the trough in April-May (below 4.5% on average). Production in services posted the same trends (+4.7% in June after 4.4% in April-May). In Q2, retail sales value almost stagnated (+0.2% y/y on average) while fixed-asset investment value contracted (-5.7% y/y year-to-date). Investment in infrastructure fell, in line with the decline in local government spending. Meanwhile, exports rose by 20% y/y in Q2, largely driven by tech products. Total import value surged by 30% y/y in Q2. China’s trade surplus reached USD 1.17 bn in the 12-month period to June 2026, only slightly lower than USD 1.18 bn in 2025.
South Korea: First interest rate hike by 25bp, at 2.75%. With inflation likely to remain above target for the rest of the year (3.2% y/y in June) and economic growth expected to remain strong, further tightening is likely. Fuel and transport price inflation is high, but the central bank is more concerned about the rise in core inflation. The economy is well placed to cope with higher interest rates.
LATIN AMERICA
Argentina: Inflation slowdown. In June, CPI inflation slowed for the third consecutive month to below 2% for the first time since August 2025. Core inflation decelerated to 1.6%. Year-on-year inflation rates were 33.5% for headline CPI and 31.8% for core CPI.
ENERGY
Prices jump higher again. Brent oil prices rose by 9% last week and by 22% since the resumption of hostilities between US and Iran. The pace of decline in US SPR oil inventories has been slowing (-3 mb in the week starting 10th July against -6.2 mb the week before), but withdrawal remains substantial. In June, OECD commercial oil inventories reached their lowest level since 2014 at 2,602 mb, equivalent to 57 days of OECD consumption. European gas prices (TTF) rose by 17% over the week to reach 60 €/MWh (Monday 20th at the opening) and by 35% since the resumption of hostilities between US and Iran, while Asian and European demand are sustained by seasonal factors and the need to refill inventories.
