Please see today’s Brooks Macdonald’s Daily Investment Bulletin received this morning:
What has happened
Monday saw somewhat of a lull for equity and bond markets with investors awaiting today’s US CPI report before making any decisive moves. There was a modest recovery in Brent Crude oil prices after the declines of recent weeks, leading energy to be one of the best performing equity sectors on the day. European equities, which had missed out on some of Friday’s rally in US markets which took place after the European close, climbed three quarters of a percentage point.
The UK saw a significant shakeup in senior cabinet staff yesterday after the removal of Suella Braverman as Home Secretary. That role will be replaced by James Cleverly alongside the eye-catching return of David Cameron (via the House of Lords) to government through the role of Foreign Secretary. Today sees the latest UK employment data which has been the subject of a review by the ONS after being delayed last month due to worries over its statistical quality. Average Weekly Earnings dipped slightly but the reading including bonuses was far stickier than markets were expecting, which will keep the pressure up on the Bank of England.
Today’s main event will undoubtedly be the US CPI release which comes at 1:30 pm UK time. The market is expecting a headline month-on-month growth of 0.1% and for that to bring the year-on-year reading down from 3.7% to 3.3%. The core reading however is expected to remain sticky, at 0.3% month-on-month, which keeps the annual number at 4.1%. Stubborn core inflation will be an unhelpful narrative for the Federal Reserve to deal with as it seeks to strike a balance between economic and inflation risks.
What does Brooks Macdonald think
Inflation has clearly fallen significantly since its peaks however the risk now is that US inflation now settles at an elevated level and proves difficult to shift. The demand side of inflation has been far more resilient than most economists believed, with excess savings supercharging consumption over the last 3 years. Should this still have further to run, the Fed may be forced to consider further interest rate hikes even though the recent tightening of monetary policy is yet to fully run its course through the US economy.
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Andrew Lloyd DipPFS