Market Commentary 26th June 2023 – from Will Binks

Investors paid close attention to official data on UK inflation released on Wednesday. The headline Consumer Price Index (CPI) rose by 8.7% year-on-year in June, remaining at the same level as May. Rising prices for air travel contributed to inflation as demand for flights sky rocketed following the COVID period. Core inflation, which excludes food and energy costs, rose to 7.1%, its highest level since August 1991.

The Bank of England (BoE) voted to hike interest rates by 0.50%, taking their headline rate to 5.0%. Markets are currently expecting the Bank of England to hike beyond the 5.75% level last seen in 2007 prior to the Global Financial Crisis. BoE officials suggested that further interest rate increases would be likely if ongoing inflationary pressures continue to persist.

Official data showed that consumer confidence in the Eurozone rose to its highest level since February 2022. The service sector and rising employment levels were a significant contributor, whilst manufacturing saw the sharpest contraction in three years.

The Russian Private Military Company ‘Wagner Group’ rebelled against the Russian government on Saturday, marking a significant development in the ongoing war with Ukraine.  The Kremlin stated that the Iranian President expressed his full support for the Russian leadership in light of the events.

A closely watched Purchasing Managers’ Index (PMI) pointed towards a sharp contraction in the manufacturing sector as new orders fell amidst weak domestic and foreign demand. Surveys suggested that manufacturers have had a much easier time in recruiting candidates when compared to the previous two years’.

The number of Americans filing for unemployment benefits was at the highest level since October 2021 as signs suggest that the US labour market is loosening. This also comes as many businesses have reported feeling some impact from the Federal Reserve’s interest rate hikes.

The annual inflation rate in Japan measured by CPI  unexpectedly declined to 3.2% in May 2023. The cost of fuel, light and electricity fell the most, offsetting increases in housing and food. This comes following the Bank of Japan (BoJ) sticking to their ultra-loose monetary policy. Core inflation, which strips out food and energy costs, also slowed to 3.2%.

The US President Joe Biden called the Chinese President Xi Jinping a dictator when speaking about the events around recent spy balloons discovered in US airspace moving the green bit before the yellow would make this sentence read much better. Recent concerns have arisen about alleged Chinese spying facilities in Cuba, escalating tensions further.

On Thursday the Bank of England implemented its 13^th consecutive rate hike, with investors expecting the main interest rate may peak at 6.1%.

Investors’ concerns regarding a recession rose following the release of poor economic PMI data in the Eurozone.

The US yield declined last week as concerns that a potential US recession could be on the table, as the Fed Chair, Jerome Powell, signalled that rates would need to continue to increase.

GBP / EUR – Current 1.1669 Previous 1.1719

The Pound weakened last week as investors grew concerned about a possible recession with the Bank of England increasing the headline interest rate by 0.5% to 5.0%. Against the Euro, the Pound declined 0.42%. Against the US Dollar, the Pound fell by 0.81%.

Rising interest rates have led to investors moving out of the non-interest bearing precious metal into other assets that can provide an income in the short term.

Hawkish rhetoric from central banks around the globe dampened the outlook and demand for oil last week, leading to falling prices.