Investment markets had a really strong week, driven by news that US inflation had dropped down to 3%. This saw equity markets rally hard and the US Dollar fall back. Bond markets also benefited, with yields falling (prices rising) on expectations that interest rates would get cut at a future date due to inflation not being as high as previously feared. This week it’s the turn of the UK to publish its inflation number and earnings season in the US is also picking up, with big names such as Tesla reporting this week.
Last week
- Stock markets bounced hard, with UK and European markets doing best
- The Pound rallied to 1.31 vs the US Dollar: its highest level since April 2022
- US inflation came in at 3%: its lowest level since March 2021
- Bond markets rallied as yields fell (bond prices move inversely to yields)
This week
- UK inflation is out on Wednesday. Survey data (as per Bloomberg) expects to see it drop to 8.2% (from 8.7%)
- 60 US companies in the S&P 500 report their earnings this week. The highlights are Tesla, Goldman Sachs, Netflix, IBM and Bank of America.
- There is quite a bit of economic data this week, with Retail Sales numbers for both the UK and US being released and also housing data for both the UK and US.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
Last week in more detail
- Stock markets posted a really strong week, with the global index of shares rising by 1.3%, the UK stock market rising by 2.6% and Continental European stock markets rising by just over 3.5%. This was the best week for the FTSE All Share since March and the rally came on the back of some very positive news on inflation out of the United States which spurred on all markets. US stock markets (up 0.4% on the week) look a bit lacklustre when translated back into Pounds, but it is worth noting that the Pound rose by 2% vs the US Dollar over the week to 1.31: its highest level since April 2022.
- Within the UK stock market, it was the smaller and more domestically focussed companies which fared best. The FTSE 350 rose by 3.2% on the week, whilst the FTSE 100 rose by 2.5% (held back a touch by the strength in the Pound and also the weakness in the oil & gas sector which makes up about 12.5% of the index).
- US inflation was the big news of the week. It came in at 3% which was its slowest pace since March 2021. This news spurred on both stock and bond markets globally as it supported the view that the US (the World’s biggest economy) would be able to start cutting interest rates by this time next year. Core inflation also slowed to 4.8% which marked the slowest rate since October 2021.
- Last week also saw the start of “earnings season” in the US. This is where companies report their earnings’ numbers for the 2nd It is always closely watched by the markets and often drives stock prices. The good news heading into this earnings season is that the bar has been set very low! Analysts (according to Factset) are expecting a blended decline for the S&P 500 of 7%. Only 6% of companies have reported so far, notably big banks such as JP Morgan, Citigroup and Wells Fargo. JP Morgan (the largest US bank by assets) posted some good numbers: beating forecasts for profits, with the benefits of higher interest rates (they can charge more on interest and loans) feeding through to the bottom line.
- It would be a stretch to describe the UK’s economic data last week as “good”, but it was better-than-expected, and this helped boost the currency and the markets. Data showed that the economy shrank by less-than-expected in May and the jobs market (which has been driving higher wages which drive the case for higher interest rates) showed signs of easing. 3-month growth numbers for the UK came in at 0% (as opposed to estimates of -0.1%) and the unemployment rate nudged up to 4% (from 3.8%).
- The bond markets posted strong gains last week. This was due to better economic data and in particular, the US inflation number (dropping to 3%). It is worth remembering that US inflation was 9.1% last June and has hence come down a long way! UK Government bonds rose by 1.6% on the week whilst UK Corporate bonds rose by 1.9% on the week. High Yield markets were also strong, with these assets rising by about 1.7% on the week. This saw UK 10-year bond yields close out the week at 4.44%.
Last week saw US inflation fall back down to 3%: it was 9.1% back in June 2022.
Source: Bloomberg
The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.
The content of this article should not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the particular investment objectives, financial situation or needs of any specific client, person, or entity.
