Market Commentary 27th March 2023 from Will Binks

The Bank of England’s monetary policy committee voted for a further 0.25% interest rate rise. The interest rate in the UK is now 4.25%, the highest rate since 2008. Consumer Price Index (CPI) data showed the headline rate of inflation came in higher than expected, with prices increasing at 10.4% year-on-year.

UK equities were varied last week, with banking and mining shares continuing on their downwards trend. The indices were propped up by companies providing consumer goods and essentials, Tesco and Sainsbury’s had a good week, gaining 1.58% and 3.97% respectively. Multinational consumer goods brand, Unilever, gained 3.69%.

A Manufacturing and Services Purchasing Managers’ Index (PMI) for the Euro Zone suggested that business activity is rising at its fastest rate since May 2022. Input costs for manufacturers slowed for the fifth consecutive month following a slowdown in energy prices.

A closely watched Business Climate indicator in Germany increased to its highest rate since February 2022. Confidence amongst businesses rose for a fifth consecutive month as price rises softened, despite ongoing concerns within banks.

The Federal Reserve raised interest rates by 0.25% to a headline rate of 5.0%, pushing borrowing costs to the highest level since 2007. The Federal Open Market Committee stated that the US banking system is sound and resilient, but recent issues with some small banks are likely to result in tighter credit conditions for households which should help bring inflation down.

An initial manufacturing PMI for March suggested that the sector continued to contract, although at its slowest rate in 5 months. Businesses reported an unprecedented improvement in supplier delivery times and lead times, which should help ease the supply chain pressures that manufacturers have been facing.

The annual inflation rate in Japan slowed to 3.3% in February from the previous month’s 41 year high of 4.3%. The cost of food increased at its fastest rate since 1980, but was offset by a reduction in fuel, electricity and gas prices. The Bank of Japan’s (BoJ) target for inflation is 2.0%

Tensions between China and the west have continued to rise in recent weeks following the accusations of Chinese Spy balloons. The social media company TikTok is now caught between the US and Chinese governments over the control of its powerful artificial intelligence. The Chinese government has taken legal measures to prevent any divestment from the company without its consent, which is not the first time the government has imposed strict rules on private companies.

The European Central Bank are expected to deliver a further interest rate hike of 0.25% in May to help tackle inflation.

Investors in the US moved into safer areas during the middle of the week amid concerns in the banking sector and a potential recession, causing the value of bonds to increase and the yields decrease.

GBP / EUR – Current 1.1360 Previous 1.1417

The Pound rose by 0.45% against the Dollar last week, whilst falling by 0.49% against the Euro. The Dollar saw its value decrease as investors worries of a recession within the US deepened, meanwhile the Euro strengthened and the European Central Bank President, Christine Lagarde, said they are determined to get inflation back on target.