Market Commentary 24th April 2023 – from Will Binks

Official data showed that the Consumer Price Index (CPI) recorded a year-on-year increase of 10.1% during March, with headline inflation slowing from the level recorded in February, but still higher than market expectations. Core inflation, which strips out food and energy prices, came in at an unchanged 6.2%.

A closely watched Manufacturing and Services Purchasing Managers’ Index (PMI) for the UK suggested that business activity continued to expand, with strong growth in the services sector despite a fall in manufacturing activity.

European economic data was mixed during the week. On the positive side, the  final data release for Consumer Price Index (CPI) recorded a year-on-year increase of 6.9% during March, showing that the rate of inflation slowed from February’s 8.5%. An indicator of Economic Sentiment for the Euro Area showed a second month of deterioration amidst uncertainty about the outlook for inflation, growth and interest rates.

An initial PMI release pointed towards the fastest increase in Germany’s private services sector in 12 months. Manufacturing output was weak, showing the biggest contraction in the sector since May 2020, as industrial businesses reduced their purchase of input materials.

Economic data in the US surprised to the upside as activity in both the Manufacturing and Services sectors increased across the month, according to a closely watched Composite PMI. Services activity continued to strengthen, whilst manufacturing activity grew for the first time since October 2022.

US-China relations continued to deteriorate, with the US President Joe Biden now planning to sign an order to limit investment into China by American businesses. It is expected that this could influence other G7 countries to follow suit.

The annual inflation rate in Japan measured by CPI slowed to 3.2% in March, which is its lowest level since September 2022. Japan’s fuel and energy costs have contributed to the slowdown, whilst food prices rose at the fastest pace in over 40 years.

Chinese economic growth measured by Gross Domestic Product (GDP) accelerated at its fastest pace since the first quarter of 2022, as Beijing focuses efforts on post-pandemic recovery. China’s retail sales also came in at a 2-year high and unemployment fell to a 7-month low.

GBP / EUR – Current 1.1319 Previous 1.1294

The Pound gained 0.22% against the US Dollar last week, as the Dollar continued to weaken globally. Against the Euro, Sterling rose by 0.19% as the PMI and GDP data contributed to hopes that the UK could avoid a recession this year.