Market Commentary 11th July 2023 – from Will Binks

The S&P manufacturing Purchasing Managers’ Index (PMI) for the UK remained in recessionary territory for the 11^th consecutive month. Input costs for the sector reduced as demand was hampered, whilst supply chains improved and fuel costs decreased.

The UK property and mortgage market continued to make headlines last week with the average mortgage rate now at a 15-year high. Halifax stated last week that house prices fell by 2.6% year-on-year in June, compared to a 1.1% fall the month before. Existing property prices declined by 3.5% year-on-year, the steepest decline since August 2009.

The German Services sector saw a rise in activity, although there are signs that a resurgence in demand is losing steam. The Manufacturing sector continued to contract according to a Purchasing Managers’ Index. Labour market data showed employment picked up last month.

Retail sales in the Eurozone declined 2.9% year-on-year in May, the same pace as the previous month, suggesting that consumer sentiment is still weak in the area.

A Purchasing Managers’ Index (PMI) from The Institute for Supply Management (ISM) showed that growth in the services sector unexpectedly jumped, pointing to the strongest growth in four months. Anthony Nieves, Chair of the ISM said respondents remain cautious relative to inflation and the future economic outlook.

Data from the US labour department suggests that the market is still tight. The number of job vacancies fell by almost 5% in May and the unemployment rate decreased slightly last week.

China recorded consumer price inflation of 0% during June, the lowest reading since deflation in February 2021, whilst factory gate prices fell at the fastest level since 2016. Expectations are high for the People’s Bank of China to continue to reduce interest rates.

Data in Japan pointed to a continued recovery, as the services sector continued to grow in June, after a record level of growth in May. Despite this, national household spending declined year-on-year with expenditure on transport and communication falling the most.

Investors are watching data on wage growth and expectations for interest rates closely as The Bank of England (BoE) governor, Andrew Bailey, said policymakers must “see the job through” in terms of bringing down inflation.

Sentiment from Central Bank policymakers remains hawkish leading to expectations for continued increases in interest rates in Europe. European Central Bank (ECB) policymaker, Joachim Nagel, expressed the belief that interest rates should increase further.

The US Federal Reserve is expected to increase interest rates by 0.25% at their next meeting this month, taking the headline rate to 5.5%.

GBP / EUR – Current 1.1701 Previous 1.1637

The Pound gained 1.04% last week against the US Dollar and 0.54% against the Euro. The Pound reached its strongest level since April 2022 against the Dollar as wage growth added pressure for the Bank of England to continue to increase interest rates.