Market Commentary 22nd July 2024 – from Charlie Hancock

Inflation data showed that the Consumer Price Index (CPI) saw a year-on-year rise of 2% in June, with the rate of inflation unchanged from the 2% recorded for May. Falling energy bills contributed to the headline rate of inflation remaining steady at the Bank of England’s 2% target last month.

Retail sales data showed a decline of 1.2% for June, with consumer spending weakening after the 2.9% increase in sales recorded for May. Economists cited wetter than usual weather as a contributor for the decline.

Eurozone inflation data showed that consumer price inflation was 2.5% in June, with price rises slowing from the 2.6% recorded for May. The European Central Bank (ECB) kept interest rates unchanged at their policy meeting, with the central bank’s President, Christine Lagarde, stating that a decision regarding an interest rate cut at their September meeting remained “wide open”. The central bank’s messages were interpreted as relatively dovish, with Lagarde stating that risks to economic growth were “titled to the downside”.

Data showed that industrial production in the Eurozone declined by 2.9% year-on-year in May, with the manufacturing sector experiencing notable weakness. Germany, Italy and France all saw sharp falls in output.

Retail sales in the US were better than expected, with sales rising by 0.8% in June. This marked the biggest increase since January 2023. Other economic data showed that building permits rose for the first time in 4 months, whilst industrial production increased by 0.6%.

Labour market data was less positive, with the number of weekly jobless claims rising to 243,000. The number of continuing unemployment claims rose to 1,867,000, which marked the highest level since November 2021.

President Xi’s government held a key policy meeting last week, with Xi vowing to continue modernising China. The key message from the Chinese Communist Party (CCP) was “stability” and it was reported that the government intends to continue implementing existing economic reform policies. National security was also highlighted as a key objective. Concerns regarding the possibility of further US-China tariffs rose as former President Donald Trump’s campaign continued. Trump announced that US Senator J.D. Vance would be his pick for Vice President. Vance is widely considered to have an anti-China stance, with the senator previously proclaiming “I don’t like China”.

Consumer price rises in Japan accelerated to 2.6% year-on-year in June, up from the 2.5% recorded for May. The government downgraded their economic growth forecast for the current year to 0.9%, revising the previous forecast of 1.3% growth lower. The government acknowledged that households have seen their purchasing power eroded as import costs have risen, with weakness in the Yen being a key factor for the rising import costs.

The week’s wage growth data appeared to have little impact on Gilt yields. UK wage growth slowed during the three months to May, with average earnings rising by 5.7%. This marked the lowest level of wage growth in nearly 2 years.

The ECB kept key interest rates on hold, but left the door open for a rate cut in September. Dovish comments from the ECB’s president supported expectations for at least one further rate cut in 2024, following the 0.25% cut implemented in June.

GBP / EUR – Current 1.1868 Previous 1.1909

The Pound gave up some ground last week, declining by 0.57% against the US Dollar and 0.34% against the Euro.