Please find below our Investment Market Update as at 16th June 2023.
Will they, won’t they?
After a good run for most equities in recent weeks, I’m going to provide a balance of perspective in light of Central Bank forecasts.
Every week, the preoccupation by the markets is centred around inflation, economic data and the likely actions of Central Banks. The Federal Reserve’s (Fed) reluctance to raise US interest rates this week had been predicted by investment markets and indeed flagged by the Fed itself for some weeks now, and this has fanned the flames of an equity rally, particularly regarding technology stocks.
There are concerns that the guidance notes from the Fed are sending mixed messages though. Is the Fed being guided by the data or not? More about that below.
Monetary policy is somewhat different in the UK and Europe, with the former having relatively elevated inflation and the latter being behind the curve of other developed nations. Nevertheless, growth orientated equities across the regions have responded well of late due to the prospects of lower inflation and ultimately lower interest rates. However, just when the markets get excited, the end of the interest rate cycle seems to lurch from our grasp and prolong the ‘will they, won’t they’ conjecture.
Stickier than expected inflation has meant that bonds have not responded in the way many analysts perceived as inflation, particularly in the UK, has proven to be stubborn. Yields have risen to similar levels last seen under the Truss government, which has seen a flurry of fund managers snapping up stock in anticipation of lower yields and higher bond prices down the line.
Here’s the agenda for this week:
- US inflation falls to lowest level since December 2020
- Fed pauses interest rates
- Is the Fed guided by the data or not?
- Stresses developing; defaults on junk loans, company profits and earnings set to dwindle
- Eurozone rates rise
- UK inflation is proving stubborn
- The pound is getting stronger
- Weekly Market Update
US inflation falls to lowest level since December 2020
A gauge of US wholesale inflation in May, slowed to the lowest level since the end of 2020 in a fresh sign of easing price pressures. According to Bloomberg, the Producer Price Index, closely watched as an indicator of where inflation is heading in several months’ time, declined 0.3% in May from the previous month. That took the annual rate to 1.1%.
US Consumer Price Data was similarly encouraging, showing headline inflation had slowed to a one-year rise of 4% in May, down from almost 5% in April.
Want to continue reading?
Our CEO, Gary Neild, writes an engaging Market Commentaries every week. If you would like to receive the full version straight to your inbox every Friday, please join our communications list.
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.