Market Commentary 17th April 2023 from Charlie Hancock

Official data from the Office for National Statistics (ONS) showed that the UK economy flatlined during February, with Gross Domestic Product (GDP) remaining flat. The ONS stated that industrial action in the public sector had an impact on economic output during the month. Over the 3 months to the end of February, the economy grew by 0.1% and is still slightly smaller than its pre coronavirus pandemic size.

The UK chancellor, Jeremy Hunt, stated that he expects the UK economy to have “turned the corner” by Spring next year. Hunt criticized the International Money Fund (IMF) for their recent forecast which suggests the UK economy is expected to shrink this year, adding that his department’s forecasts are “significantly better”.

The manufacturing sector in the Eurozone showed signs of improvement during February, with higher output in comparison to the same period last year. Other data showed that Eurozone consumers were under pressure, with retail sales declining in February. Germany and France recorded the weakest retail sales readings of -1.3% and -1.5% respectively.

The lower house in the Swiss parliament voted against providing government guarantees for the takeover of Credit Suisse by UBS. The vote was seen as a clear sign that the Swiss government are not in favour of the deal.

Investors paid close attention to March’s Consumer Price Index (CPI) data, which was released on Wednesday. The data showed that headline inflation in the US slowed to an annual rate of 5.0%. The headline rate was the slowest rate of consumer price increases recorded since Spring 2021, however, core inflation (excluding food and energy prices) remained relatively high at 5.6%.

Initial unemployment claims for the week came in higher than expected, whilst retail sales in March fell by more than median economist estimates. The softer economic data came as minutes from the most recent Federal Reserve policy meeting were released, which showed that some officials at the central bank expect a “mild recession” later this year. Most voting members appeared in favour of a further rate increase at the upcoming May policy meeting.

Exports from China rose for the first time in 6 months during March, defying economist estimates for a decline. Imports fell, but by less than expected. Consumer Price Inflation (CPI) slowed to just 0.7% during the month, suggesting that demand amongst Chinese consumers remains weak.

Bloomberg reported that European technology investment company, Prosus, intend to sell more than $4 billion of their holding in Tecent, whilst Japanese investment giant, Softbank, is reportedly preparing to dispose of their stake in Alibaba. The US listed shares for Tencent and Alibaba fell by 6.55% and 7.97% respectively across the week.

Kazuo Ueda was officially appointed as the new governor of the Bank of Japan (BoJ) on Sunday 9^th. Ueda appeared dovish during his first press conference, stating that negative interest rates remain appropriate because inflation in Japan is not consistently meeting their 2% target.

The minutes showed that whilst members of the central bank’s voting committee appeared concerned by stress in banking sector, ultimately, they remained focussed on reducing inflationary pressures in the US economy. Financial markets currently expect that the Fed will hike by 0.25% at their may policy meeting.

GBP / EUR – Current 1.1294 Previous 1.1384

The Pound was broadly flat against the US Dollar (+0.04%), with the greenback weakening against most major currencies last week. Against the Euro, Sterling fell by 0.79%, with the Eurozone currency strengthening following hawkish comments from the ECB.