Centrica revealed its unbelievable profits and global market updates.

We feel it only fair to start the weekend review by mentioning the very controversial announcement on Thursday by British Gas owner Centrica.

Centrica revealed its profits had soared almost 900% on Thursday for the first half of the year in its UK household supply arm, after a cold and expensive winter for many UK residents.

Underlying earnings at British Gas rose to £969m compared with £98m a year earlier, according to the report.

UK Gas and electricity prices rose 36.2% and 17.3%, respectively in the year to June 2023, and have been one of the largest contributions to the overall inflation rate since April 2022.

Well, I’m sorry, but this is the actual price of wholesale UK gas for the last 12 months.

Whatever excuses they are making about how they made so much money, I think we can see how. The numbers don’t lie. Gas prices in the UK rose 36.2% in the year to June 2023. And above, we can see that UK natural gas is down about 80% at the same time. Can someone please explain how this works?

With that said, what happened in the markets this week?

In what was a busy week of economic news and data, the pan-European STOXX Europe 600 Index, Italy’s FTSE MIB, France’s CAC 40 Index, Germany’s DAX, and the UK’s FTSE 100 Index advanced. Despite the Federal Reserve and the European Central Bank (ECB) announcing interest rate increases, investor sentiment appeared to be lifted from policymakers' dovish tone. Reports from China early in the week, which suggested that authorities are considering further support to boost the world's second-largest economy, also encouraged investors.

Data released in the week showed a slowdown in regional business activity. The Flash Eurozone Composite PMI Index, an initial gauge of activity in the manufacturing and services sectors, fell to an eight-month low of 48.9 in July from 49.9 in June. At a country level, Purchasing Managers’ Index (PMI) readings in France and Germany were both weaker for the month.

In Germany, the IFO business climate index fell for the third straight month to 87.3 in July from 88.6 the previous month. On an encouraging note, the UK business sentiment index recorded a positive score for the three months to July.

IN A LARGELY EXPECTED MOVE, the ECB increased interest rates to a record-equalling high of 3.75%. The bank cited the prospect of euro area inflation staying too high for too long as a key reason for the 0.25-percentage-point hike.

However, it also suggested that it was keeping an open mind about future rate decisions and hinted that a pause in monetary tightening could be on the horizon.

Annual inflation in the euro area came in at 5.5% in June, down from 6.1% in May but still well above the ECB’s 2% target. Preliminary July inflation readings at a country level provided mixed messages. Data showed that price growth in France cooled more than expected to 5% in July from 5.3% in June. However, adjusted Spanish inflation came in at 2.1% in July, up from 1.6% in June and against expectations of another flat 1.6% print.

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US stocks ended higher over a week notable for the Dow Jones Industrial Average’s notching its 13th consecutive daily gain on Wednesday, which marked its longest winning streak since 1987. However, trading was relatively subdued, as the summer vacation season diverted some of the focus on a slew of important data releases, a Federal Reserve policy meeting, and some high-profile corporate earnings reports. Growth stocks handily outpaced their value counterparts, and the gains were led by the technology-heavy Nasdaq Composite.

Sentiment appeared to get a boost from a series of generally positive economic readings, particularly on inflation. Stocks opened sharply higher on Friday, following news that the Fed’s preferred inflation gauge, the core (less food and energy) personal consumption expenditures (PCE) price index had risen 0.2% in June, down from 0.3% in May, making for a year-over-year increase of 4.1%, a tick lower than expectations and the slowest increase since September 2021.

In addition, the employment cost index—closely watched because of policymakers’ continued concern about wage inflation—rose 1.0% in the second quarter, also below consensus and the smallest increase in two years.

Moreover, the week’s data suggested that the economy might manage a soft landing and skirt a recession even as borrowing costs increased. On Wednesday, the Commerce Department reported that the economy had expanded at a year-over-year pace of 2.4% in the quarter, well above both the previous quarter’s growth rate of 2.0% and consensus expectations of around 1.8%. Both businesses and consumers appeared to remain in good shape and spending freely. Durable goods orders jumped 4.7% in June, while personal spending rose 0.5%. Pending home sales also rose unexpectedly.

The Fed announced a 0.25% increase in the federal fund's target rate following the conclusion of its policy meeting on Wednesday, as expected. In his post-meeting press conference, Fed Chair Jerome Powell acknowledged that “restrictive” monetary policy was now “putting downward pressure on economic growth and inflation,” but he stressed that further changes to interest rates would be guided by incoming data.

Futures markets ended the week pricing in only a 27.4% chance of further rate hikes by the end of the year compared with a 90.8% chance the week before.

Japan’s stock markets rose over the week, with the Nikkei 225 Index up 1.4% and the broader TOPIX Index gaining 1.3%. The Bank of Japan surprised investors by tweaking its monetary policy, announcing that it would increase flexibility around its yield curve control (YCC) target. As widely expected, the BoJ also revised its forecast for consumer price inflation in fiscal 2023.

Chinese equities rallied after Beijing signalled it will provide more stimulus to support the economy. The Shanghai Stock Exchange Index gained 3.42%, while the blue-chip CSI 300 soared 4.47%. In Hong Kong, the benchmark Hang Seng Index rose 4.41%.

Economists lowered their growth forecasts for China as it continues to grapple with weak demand. China’s gross domestic product is projected to expand 5.2% this year, down from previous estimates of 5.5%, while growth for 2024 is forecast to expand by 4.8%, according to economists surveyed by Bloomberg.

The revisions came after China recently reported its economy grew at a slower-than-expected pace in the second quarter amid weakening domestic and external demand.

In central bank news, China’s leadership appointed Pan Gongsheng as the governor of the People’s Bank of China. The move was expected after Pan was named the Communist Party's secretary at the central bank earlier in July.

What to look for this week.

Earnings season continues in the coming week with reports due from some of the market’s most widely held names, including Apple and Amazon, among others.

We’ll get the latest updates on the labour market, including the Job Openings and Labor Turnover Survey (JOLTS) for June, ADP’s National Employment Report, and the July nonfarm payrolls report. PMI readings from S&P Global and the Institute for Supply Management will also become available, along with.

In Europe, our main focus will be inflation and GDP readings as well as an interest rate decision from the Bank of England.

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