INFLATION REMAINS IN THE SPOTLIGHT AS ECONOMIES CONTINUE TO TICK OVER
This week there was a modicum of good news; inflation in the US continued to abate with the fabled “soft landing” of the US economy still possible, despite a slight uptick in unemployment claims.
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US DOWNGRADE LEAVES MARKETS UNMOVED BUT INVESTORS REMAIN CONCERNED ABOUT THE OUTLOOK
This week brought a surprise cut to the US government’s credit rating, while the Bank of England continued its tightening campaign with another 0.25% rate hike.
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FED AND ECB DELIVER AS EXPECTED BUT MARKETS STILL NERVOUS OF FURTHER HIKES
This week the Federal Reserve and European Central Bank delivered rate hikes as expected. By stating that rate decisions will be determined by the data, the outcome of these meetings was effectively settled some weeks ago.
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IMPROVED INFLATION WELCOMED BY MARKETS BUT IT IS TOO EARLY TO CLAIM IT IS UNDER CONTROL
This week’s election results and inflation update looked very similar for Rishi Sunak’s government – better than expected, but far from good. The Conservatives defied predictions of a loss of all three constituencies.
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EQUITY AND BOND MARKETS BENEFIT AS US INFLATION DROPS TO ITS LOWEST IN TWO YEARS
This week brought a significant shift in the narrative surrounding inflation. US headline inflation dropped to 3% in June. Core inflation has been more resilient than the headline rate but it also fell.
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Summer Outlook
Positive equity markets have been offset by declines in bond markets as persistently high inflation has pushed central banks towards further rate hikes.
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PESSIMISM FROM THE FEDERAL RESERVE IS CONTAGIOUS AS VOLATILITY RETURNS TO EQUITY MARKETS
This week government bonds took another leg down and volatility returned to previously bullish equity markets.
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GOVERNMENTS TOLD TO ALIGN FISCAL AND MONETARY POLICIES TO GET INFLATION UNDER CONTROL
This week it was the Bank for International Settlements’ turn on the subject of inflation. Aside from encouraging central banks to stay the course, the BIS pointed out that getting inflation down is made harder when fiscal policy is running counter to monetary policy.
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BANK OF ENGLAND’S FIGHT AGAINST INFLATION IS MADE HARDER BY BETTER CONSUMER SENTIMENT
This week we saw the Bank of England make a big effort to try and get on top of inflation. The bank has been repeatedly caught out by inflation that has risen far higher and lasted far longer than predicted.
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THE FED AND ECB STICK TO THE SCRIPT BUT MARKETS ARE ON NOTICE OF MORE HIKES TO COME
This week’s central bank interest rate decisions came in as expected. The Federal Reserve left rates unchanged – the first time it has opted not to hike since March 2022 – while the European Central Bank increased rates by 0.25%.
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