Please see this week’s Weekly Market Commentary from Brooks Macdonald detailing the latest economic and market news:
This weekend’s mutiny in Russia is likely to create further regional instability over the short and medium term
After a poorer week for equity performance, market attention quickly shifted to events in Russia over the weekend which will likely herald further political instability in Russia over the medium term. In terms of near term implications, this could either lead to President Putin escalating the Ukraine war to re-establish authority or leave a void which Ukraine may be able to utilise.
Friday’s US PCE inflation release will be watched for signs of a further easing in US price pressures
This Friday sees the release of the US Personal Consumption Expenditure (PCE) inflation which is released alongside a broader set of personal income and consumption data. The PCE data is preferred to the Consumer Price Index (CPI) data by the US Federal Reserve (the Fed), in part because it assumes a degree of substitution if one good or service surges in price. The core PCE reading (excluding food and energy) is expected to stay flat at 4.7% while the headline PCE reading is expected to fall from 4.4% to 3.8%. Given the importance of inflation expectations to the path of US interest rates, this will be closely watched as will the personal income and consumption components which will guide markets as to how long the current pace of US consumption can continue.
Eurozone core CPI is expected to rise on Friday however the headline CPI rate should see significant falls
This week also sees the European CPI releases, with Italy starting the country-level releases on Wednesday before Friday’s Eurozone data. In terms of the Eurozone data, the market expects Core CPI to rise from 5.3% to 5.5% and for the headline to fall from 6.1% to 5.6%. With this the last CPI number ahead of the July European Central Bank (ECB) meeting, this report will have significant implications for Eurozone interest rate policy.
The annual US bank stress test results are also due on Wednesday and will be of interest to the market given the regional banking crisis earlier in the year. The tests will include a ‘severely adverse scenario’ which will model a severe global recession combined with a sell-off in real estate and corporate debt markets. While the regulator will be keen to avoid further lack of confidence in the banking sector through banks failing the stress tests, the tests will need to be sufficiently tough to retain credibility.
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Andrew Lloyd DipPFS
27/06/2023