Week Ahead (27 July)

Thursday, 30 July – Commission expected to clear PIF-EA under FSR following unconditional merger approval

The European Commission is expected to decide this week whether to approve Saudi Arabia's Public Investment Fund (PIF)-led acquisition of video game publisher Electronic Arts (EA) under the Foreign Subsidies Regulation (FSR), with all indications continuing to point towards an unconditional Phase I clearance.

Last Thursday, the transaction secured unconditional approval under the EU Merger Regulation (EUMR), with the Commission concluding that the proposed $55 billion acquisition would not significantly impede effective competition given the highly competitive nature of the global video games industry and the absence of material horizontal overlaps between the parties. Attention has now turned to the parallel FSR review, where the Commission will assess whether foreign financial contributions linked to the Saudi-backed consortium distort competition within the internal market.

As outlined in our previous reports, the transaction initially appeared capable of becoming another high-profile test of the Commission's approach to sovereign backed acquisitions, following the earlier Phase II investigations into ADNOC–Covestro and e&–PPF Telecom. However, extended discussions between the parties and DG COMP over recent weeks appear to have addressed the Commission's principal concerns regarding the acquisition's financing structure. In particular, the consortium is understood to have provided additional assurances that the acquisition vehicle operates on a commercial basis and that any financial support associated with the wider PIF group would not provide EA with an undue competitive following completion of the transaction.

The case therefore appears increasingly distinguishable from the Commission's more interventionist recent FSR practice. Whereas the ongoing Phase II review of JD.com–Ceconomy centres on preliminary concerns over preferential financing, tax incentives and other foreign financial contributions potentially attributable to the Chinese state, and the earlier ADNOC and e& investigations involved acquirers with explicit sovereign ownership, the Commission does not appear to have identified sufficiently serious concerns in the PIF–EA transaction to justify opening an in-depth investigation.

Overall, our base case remains that the Commission will clear the transaction at the end of its Phase I review, reinforcing the emerging picture that, while the FSR remains an increasingly important element of EU merger control, DG COMP continues to reserve its most intrusive scrutiny for transactions where it identifies credible evidence that foreign financial contributions may have materially distorted competition.

Thursday, 30 July – Eurozone flash inflation figures to provide first indication of Middle East energy shock ahead of September ECB meeting

Eurostat will publish its preliminary July inflation estimate for the euro area on Thursday, providing the first major indication of how the recent rebound in energy prices following the renewed US-Iran conflict and disruption around the Strait of Hormuz is feeding into consumer prices. The release is expected to play an important role in shaping expectations ahead of the European Central Bank's September policy meeting, after policymakers last week left interest rates unchanged but while at the same time adopting a more hawkish tone.

As it was widely anticipated, the ECB unanimously kept its deposit facility rate at 2.25% last Thursday, while acknowledging that the recent rebound in oil (shortly reaching up to a $100 price late last week) and natural gas prices has materially altered the inflation outlook. Although President Christine Lagarde confirmed that some Governing Council members had considered an immediate rate increase, policymakers ultimately opted to wait for additional data before deciding whether further tightening will be required. Nevertheless, her remarks that the ECB's previous benign energy scenario now appears "quite unlikely" and that "the full effects of the energy shock have yet to play out" reinforced market expectations that a September rate increase remains the central scenario.

Against that backdrop, this week's inflation figures will attract particular attention because they will be the first to capture the recent deterioration in the geopolitical environment. By contrast, June's inflation data, which showed headline inflation easing to 2.8%, down from 3.2%, in May and core inflation moderating to 2.4%, largely reflected a period of declining energy prices during the temporary ceasefire in the Middle East and therefore predated the latest escalation in regional tensions. Those figures helped justify the ECB's decision to pause this week but are now widely viewed as offering only a partial picture of the current inflation environment.

Beyond the headline rate, markets will closely monitor developments in energy and core inflation to assess whether higher oil prices are beginning to spill over into broader price pressures. So far, the ECB has repeatedly stressed that it has yet to observe meaningful second round effects through wages or underlying inflation. Consequently, this week's release will provide an important test of whether the recent energy shock is proving temporary or beginning to generate more persistent inflationary pressures. A stronger than expected reading would likely reinforce expectations of a September rate hike.

Thursday, 30 July – Bank of England expected to hold rates steady as markets assess inflation progress and resilient labour market

On Thursday, the Bank of England is expected to leave its Official Bank Rate unchanged at 3.75%, with investors focusing less on the policy decision itself and more on the accompanying Monetary Policy Report and any signals regarding the timing of the next move. At its previous meeting in June, the Monetary Policy Committee voted 7-2 to keep rates on hold, with Huw Pill and Megan Greene favouring a 25-basis point increase, highlighting that concerns over underlying inflationary pressures have yet to fully ease.

Recent economic data have painted a mixed picture. On the one hand, headline inflation eased further to 2.6% year on year in June, down from 2.8% in May and slightly below market expectations, suggesting that price pressures continue to moderate. However, underlying inflation remains more persistent, with core CPI holding at 2.6%, marginally above consensus forecasts, reinforcing the BoE's cautious approach to declaring victory over inflation.

The labour market has also proved more resilient than anticipated. Employment increased by 147,000 in May, comfortably exceeding expectations of around 85,000, while the unemployment rate remained unchanged at 4.9%, defying forecasts for a modest increase. The stronger than originally expected employment figures suggest that domestic demand and wage pressures may remain sufficiently robust to warrant a cautious policy stance despite the recent improvement in headline inflation.

Overall, the latest data have reduced expectations that the BoE will need to tighten policy further in the immediate term, with markets increasingly pushing back the timing of any potential rate increase. Nevertheless, policymakers are expected to reiterate that monetary policy will remain data dependent, particularly given renewed uncertainty surrounding global energy markets and broader geopolitical developments. As such, market participants will need to closely scrutinise this week's policy statement and updated economic projections for any indication of how the Committee assesses the balance between easing inflationary pressures and the risk of renewed price shocks.