Please see below this week’s Weekly Market Commentary from Brooks Macdonald – received late yesterday afternoon – 22/08/2022
Weekly Market Commentary | Investors’ focus on inflation sees equities lose ground
22 August 2022
By Edward Park
- The expected divergence between US and European inflation weighed on equities last week
- This week’s annual Jackson Hole forum will see Fed Chair Powell address July’s US Consumer Price Index (CPI) downside surprise
- July’s European Central Bank (ECB) minutes, released on Thursday, are likely to show a central bank boxed in by inflation and poor growth prospects.
The expected divergence between US and European inflation weighed on equities last week
US and European equities lost ground last week as investors focused on the near-term desire from central bankers to further reduce inflation expectations. This led bond markets to price in additional near-term rate rises which weighed on interest rate sensitive sectors such as technology.
This week’s annual Jackson Hole forum will see Fed Chair Powell address July’s US Consumer Price Index (CPI) downside surprise
This week’s macroeconomic focus will be the annual Jackson Hole economic symposium which takes place from Thursday until Sunday. The most important event within the forum will be Federal Reserve (Fed) Chair Jerome Powell’s speech on inflation and economic growth which takes place on Friday. The recent rise in equity markets, and more lacklustre week last week, has been closely correlated with the ebbs and flows of the market expectations around the evolution of Federal Reserve policy in the face of retreating inflationary pressures in the US. The US Fed is very much focused on further reducing consumer and corporate expectations around future inflation so there is unlikely to be a huge pivot in how the Fed refers to upcoming monetary policy. That said, Powell himself said that the committee were highly data dependent given the uncertain path of inflation. Therefore, with July’s CPI number suggesting that we may have seen peak US inflation, how Powell expects the committee to react to that data will be an important determinant of market sentiment over the coming weeks.
July’s European Central Bank (ECB) minutes, released on Thursday, are likely to show a central bank boxed in by inflation and poor growth prospects
The ECB meanwhile have an even trickier policy tightrope to walk with Europe experiencing economic pressures, energy price surges and stickier inflation. On Thursday, the ECB will release the minutes from their July meeting and the balancing of inflation and recessionary risks is likely to be the main debate between board members. The tail end of the week also sees flash Purchasing Managers’ Index (PMI) surveys of business activity as well as European consumer confidence gauges which have been particularly poor in recent months.
One of the main themes of last week was the expected divergence of economic growth, inflation and monetary policy between the US and Europe over the short-to-medium term. The latter part of this week may put this in stark contrast with the ECB minutes showing a central bank boxed in by inflation and Powell’s speech having more room for manoeuvre given the downside surprise to the latest US CPI reading.
Please continue to check back for our latest blog posts and updates.
Charlotte Clarke
23/08/2022