Please see below, Brooks Macdonald’s Weekly Market Commentary providing a brief analysis of the key economic and market news over the past week. Received yesterday afternoon – 15/05/2023
Equity markets were subdued last week with US equities seeing small losses and European equities small gains. Technology equities outperformed with large cap US names leading the narrow but powerful rally seen in 2023.
Inflation expectation data suggests that consumers think that inflation will be stickier in the US
On Friday last week the release of the University of Michigan’s consumer and inflation data damaged sentiment. The long-run consumer inflation expectations rose to 3.2%, ahead of 3% in the prior reading and market expectations of just 2.9%. This number is often revised however the US Federal Reserve (the Fed) will be concerned that this may suggest that inflation expectations are becoming more anchored. The one-year measure of expectations was also above expectations but did fall slightly from the month prior. Consumer sentiment was worse than markets had expected, with consumers citing fears of a more protracted recession as a major contributor to the more sombre reading. This week investors will be looking to the US retail sales numbers on Tuesday which are expected to have expanded but for a meaningful proportion of this expansion to have been caused by higher gas prices. The headline number therefore may be a distraction and the data is likely to confirm a slowing in consumption compared to the start of 2023.
Allegations of fraud in the initial jobless claims puts the data release in focus this week
The high-frequency US initial jobless claims data is released on a weekly basis and will be watched closely on Thursday given this is the week where the surveys are completed for the next US employment report. Media reports and statements from the Massachusetts Department of Labor suggest that the recent initial jobless claims data may be misleading in suggesting a softening of labour market tightness. The state has accounted for around half the rise in four-week moving average claims since the late January low. Should these claims have been subject to fraud, as the data and media reports suggest, the initial jobless claims may start coming down significantly, whilst this would be good news for the US economy it is of course less positive for inflation.
UK labour market data this week will help determine whether the UK continues to hike interest rates
With the focus previously on US labour market strength, this week will see the release of UK labour market data which is particularly important as bond markets debate whether there will be a pause in the UK interest rate. Should the data continue to show strength in wage prices this will put pressure on the Bank of England to maintain its tightening stance.
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Alex Kitteringham
16th May 2023