Market Commentary 4th July 2023 – from Charlie Hancock

Constituent companies in the FTSE 100 saw mixed performance last week. Some heavily weighted stocks lifted the index, such as Barclays (+5.62%) and Lloyds (+3.00%), whilst housebuilder Persimmon (-3.16%) and consumer goods giant GlaxoSmithKline (-2.60%) kept a lid on gains for the overall index.

The UK government appeared to be concerned about the UK’s high inflation rate last week. Prime Minister Rishi Sunak suggested that he could ignore calls for public sector pay increases, whilst Chancellor Jeremy Hunt met with regulatory bodies from various industries to discuss concerns around “greedflation” where companies are accused of hiking prices to boost profits.

An initial estimate for Eurozone inflation in June showed the rate of consumer price increases slowing to 5.5% from the 6.1% recorded for May. The rate was lower than consensus estimates amongst economists, however, core inflation, which strips out food and energy, accelerated from 5.3% to 5.4%.

The European Central Bank (ECB) hosted an annual conference on central banking last week, with senior figures from central banks around the globe in attendance. ECB President, Christine Lagarde, delivered a relatively hawkish message. Lagarde stated that whilst the central bank had made “significant progress” regarding inflation levels, it is too early to declare victory. Other ECB members appeared less hawkish, stating that further hikes would be dependent on incoming economic data.

Investors paid close attention to economic data during the week. The personal consumption expenditures (PCE) index, often considered to be the Federal Reserve’s preferred measure of inflation, recorded a year-on-year increase of 3.8% in May. The core PCE inflation rate remained elevated at 4.6%.

Other economic data was generally better than expected. Weekly jobless claims declined from the previous week’s level, whilst private sector incomes saw a healthy increase during May. New home sales rose by 12.2%, defying expectations for an increase, however, analysts noted that the slump in the sale of existing homes has forced buyers to look at new properties, whilst housebuilders have also offered incentives to entice buyers.

Newsflow from China continued to paint a gloomy picture. Spending during the recent dragon-boat festival period was lower than pre-pandemic levels, pointing to weak consumer confidence. Two large property development companies failed to meet interest payments on their US Dollar denominated bonds amidst cash flow issues and a weakening Yuan. The International Monetary Fund (IMF) warned that stimulus measures in China might be smaller than anticipated by many economists.

The Consumer Price Index (CPI) for the Tokyo region recorded a year-on-year increase of 3.2% in June, below expectations. The governor of the Bank of Japan (BoJ), Kazuo Ueda, spoke at the ECB’s conference and stated that the central bank would have good reason to change their policy stance if they believe that inflation could accelerate into 2024.

GBP / EUR – Current 1.1637 Previous 1.1675

The Pound weakened slightly last week, falling by 0.09% against the US Dollar and 0.33% against the Euro. The Euro appeared to strengthen amidst data showing that inflation in the Eurozone continued to slow last month.