Market Commentary 9th May 2023 – from Will Binks

Last week saw the release of closely watched Purchasing Managers’ Index (PMI) data for both the services and manufacturing sectors. UK manufacturing remained in recessionary territory, whilst data showed that both input and output costs in the sector were subsiding. The PMI data for the services sector came in much better than expected, pointing to the biggest growth in the services sector in a year.

Halifax released its monthly house price index which indicated that house prices had fallen, after three consecutive months of growth, with properties in and around London suffering the most. Halifax stated that, whilst existing property prices have declined, new-build house prices have risen.

The European Central Bank (ECB) raised its key interest rate by 0.25% last week, signalling a slowdown of tightening, but with inflation still being the main focus for the central bank. The ECB President Christine Lagarde told a news conference that they still had more ground to cover and were not pausing the rate-lifting cycle anytime soon.

The German Services sector saw a rise in activity, whilst the Manufacturing sector continued to contract according to a Purchasing Managers’ Index. The service sector saw stronger growth as domestic and international demand continued to increase. Data released on employment showed poor job growth in the nation.

The Federal Reserve raised interest rates by 0.25% to a headline rate of 5.25%, making it the 10^th consecutive increase. The central bank also signalled that the current cycle of interest rate hikes may be over, as their statement differed from the usual. Fed Chairman, Jerome Powell, implied that there had been a meaningful change in policy direction.

A closely watched Purchasing Managers’ Index pointed towards growth in both the services and manufacturing sectors last week as private sector business activity increased. Data released showed that the US unexpectedly added a significant number of jobs last month,  however the number of job openings dropped to the lowest level in over two years, indicating that the labour market may be cooling off.

The Chinese manufacturing sector contracted for the first time since January 2023 according to a Purchasing Managers’ Index. Despite growth in activity in the services sector, survey data came in weaker than expected, marking its first slowdown since October 2022 following some setbacks in their COVID-19 recovery.

Japanese household spending declined in March, pointing to the nation’s second contraction in 2023. Spending dropped in almost all sectors last month as consumers hold back amidst rising inflation.

Investors anticipate interest rates in the UK will rise following the Bank of England’s upcoming meeting. The base rate is currently 4.25% in the UK.

The Bund Yield fell early last week, but gained some ground following news that the European Central Bank (ECB) increased its interest rate by 0.25%. The ECB President Christine Lagarde stated that the bank still has more to do and will not pause the rate lifts anytime soon.

The Federal Reserve voted to increase their base interest rate by 0.25% last week, bringing borrowing costs to their highest level since September 2007. Employment data released also showed a larger than expected job gain, prompting expectations for interest rate cuts later this year to fade.

GBP / EUR – Current 1.1460 Previous 1.1404

The Pound gained 0.50% against the US Dollar last week, whilst rising by a similar 0.49% versus the Euro. The Pound has continued from its previous weeks upwards movement as expectations grow for a further interest rate hike by the Bank of England to help tackle high inflation.