Please find below, a Daily Investment Bulletin received from Brooks Macdonald this morning – 19/08/2022
What has happened
Amidst a quieter day for equities and bonds, European and US equity markets managed to hold on to small gains as bond yields remained steady despite a large volume of central bank speak.
Ukraine war
There were some progress around peace negotiations between Russia and Ukraine yesterday with Turkey playing the role of intermediary between the two parties. Alongside President Zelenskiy and President Erdogan, UN Secretary General Guterres joined the talks in Lviv. Turkey are now set to consider launching talks with President Putin as reports suggested that both sides were open to establishing diplomatic channels albeit via the proxy of Turkey for the time being.
Central banks
The ECB started the day with some more hawkish speakers setting the tone. ECB board member Schnabel began, suggesting that inflation may continue to rise in the short term and that the ECB’s view of inflation risks is yet to change as ‘I do not think this outlook has changed fundamentally’. It was a similar tone from the ECB’s Kazaks who said that the ECB will ‘continue to increase interest rates’ to bring inflation expectations under control. The market is pricing in 50bps of ECB rate rises at the next meeting in September. Over in the US, there was a range of opinions on the next steps for Fed interest rates at the September meeting. President Daly backed a 50bp move whilst President Bullard supported 75bps and President George spoke more of the risks of inflation complacency. President Kashkari discussed the possibility of a soft landing, admitting that he didn’t have a high level of confidence that the Fed would be able to achieve that nirvana.
What does Brooks Macdonald think?
The tone from both the ECB and Fed were similar yesterday, a reiteration of the need to bring inflation under control and a willingness to hike rates to achieve that outcome. Of course, their domestic inflation and economic paths are likely to be very different therefore the Fed’s desire is probably more focused on convincing the market that future inflation expectations should be close to target. The next major central bank event will be the Jackson Hole symposium next week with Fed Chair Powell speaking on Friday.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
David Purcell
19th August 2022