Please see this week’s weekly market commentary from Brooks Macdonald providing their commentary on global markets:
- Bonds and equities sold off last week as an oil price rally stoked inflationary concerns
- US inflation is in the spotlight this week as the US releases the latest CPI and PPI numbers
- The ECB is likely to pause its interest rate hikes this week but leave the door open for future rises
Bonds and equities sold off last week as an oil price rally stoked inflationary concerns
While there was relatively little economic data last week, it did not prevent a risk off tone from gathering momentum. Equities fell over the week at the same time as bond yields rose. This week sees a bumper collection of economic data releases as well as the European Central Bank (ECB) meeting.
Inflation is the focus this week with the US Consumer Price Index (CPI) release on Wednesday, eagerly awaited. Whatever the outcome of the release, we will not hear immediately from US Federal Reserve (the Fed) speakers as they are now in a communication blackout. Any deviation from market expectations will, however, play into the Fed’s monetary policy decision next week. After a recent run of disinflationary readings, the headline US CPI is expected to rise from 0.2% month-on-month to 0.6%, with this increased largely attributable to higher natural gas prices. Those higher gas prices will be excluded from the core inflation reading, which is expected to be relatively subdued, but if energy prices remain elevated they will drive second-order inflation in goods and services over time.
US inflation is in the spotlight this week as the US releases the latest CPI and PPI numbers
The Producer inflation number will also be an input into the Fed’s interest rate decision with investors looking closely at the healthcare sub-component which is an important part of Personal Consumption Expenditures (PCE) inflation, the Fed’s preferred measure. Healthcare wage inflation is the concern here as wage growth could increase broader healthcare inflationary pressures after the recent falls. Lastly, we will see a gauge of consumer demand through the US retail sales release which follows a strong July reading. Economists are expecting a degree of mean-reversion after July, with retail sales falling back from 0.7% month-on-month to a less exciting 0.1%. The Fed will also be highly sensitive to this reading as it weighs up the probabilities of a US recession versus a soft landing.
The ECB is likely to pause its interest rate hikes this week but leave the door open for future rises
It is a major week for inflation and economic growth indicators in the US which will set up expectations for the Fed’s meeting next week. This week the ECB will also meet, with the balance of probabilities pointing towards a pause in their interest rate hike cycle. Given inflation still remains sticky in the Euro Area, we expect the ECB to continue with a hawkish tone and frame a pause as a sensible step given the region’s stagnating Gross Domestic Product (GDP) growth, but for the central bank to caution that further interest rate rises are still likely.
Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.
Andrew Lloyd DipPFS
12/09/2023