Please see the below article from Brooks Macdonald detailing the latest update and economic news from the US. Received 17/07/2023.
Global equities surged last week, spurred by softer-than-expected US inflation
Equities fell marginally on Friday but the week in aggregate saw strong gains in equities and bonds as a softer Consumer Price Index (CPI) report reignited hopes of a US soft landing. This week will see a series of US economic data releases, alongside the first full week of the earnings season, which will help investors gauge whether growth has been impacted yet by the restrictive US monetary policy.
US earnings season is underway with major technology and banking names reporting this week
Last Friday saw the start of the US earnings season and the releases from some of the major US banks. Those banks reporting strong results saw rallies in their share prices, mirroring the anecdotal evidence that global asset allocators are underweight equities and are implying that there is still plenty of cash on the sidelines to enter stocks when there is good news. This week sees Tesla, Netflix and IBM alongside other major US banks such as Bank of America, Morgan Stanley and Goldman Sachs. The earnings season takes some time to get going so we will only see c. 10% of the large US companies reporting this week, though by the end of the week we will have a good idea of how earnings for many sectors are likely to play out.
The latest compendium of Chinese data shows an economy struggling to regain momentum
This morning saw the latest compendium of monthly Chinese data. The data showed an economy still struggling to grow despite the exit of pandemic era restrictions. Gross Domestic Product (GDP) expanded by 6.3% in Q2 on a year-on-year basis but this was well below the 7.3% expected by analysts. Given the comparable quarter in 2022 is a period that saw the Shanghai COVID outbreak, investors had hoped to see a more sizeable rebound. Importantly the quarter-on-quarter GDP growth rate was just 0.8%. Retail sales also marginally disappointed as momentum slowed.
After the market’s strongly positive reaction to the trifecta of slower CPI, Producer Price Index (PPI) and used car prices last week, European investors will be keeping a close eye on the UK CPI report on Wednesday. With the UK experiencing inflation due to domestic issues (such a lack of labour supply) and international factors (food prices), it is likely that any global disinflation will take some time to filter through. That said, expectations around UK inflation are very high at the moment, so a small glimmer of disinflation could be enough to reverse the rapid rise in UK interest rate expectations since the upside surprise to UK CPI a few months ago.
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Alex Clare
18/07/2023