Jul 14, 2023 11:45:34 AM
Weekly Market Wrap 14/07/2023
Bond and equity markets rallied on hopes that US interest rates were peaking and inflation moderating in the US and Europe.
The UK market ended the week higher. The OBR has stated that high inflation will not help public finances as in the past as government debt is now more sensitive to changes in interest rates. Sunak has sought on Thursday to end public sector strikes by offering pay increases of 6% and above, whilst warning that it would lead to cuts elsewhere.
The S&P 500 is set to end the week up 2.25% at 4,510 and the NASDAQ is up 3.56% at 15,571. US inflation data surprised to the downside this week, with both headline and core CPI falling by more than expected. Headline CPI hit 3.0% in June (est 3.1%), falling strongly from the 4.0% reading in May, whilst core CPI was expected to falling from 5.1% to 5.0% in June, however, came in at 4.8%. Global equities rallied on Wednesday after the data, whilst much of the positive carried over to trading on Thursday as investors hoped that other regions could see inflation ease in a similar manner. Markets now expected only more interest rate hike in the US, with the final increase thought to be in July and would take the base rate to the 5.25-5.50% range. Cuts in the fed’s rate are not expected to be seen until Q1 of 2024.
The Euro Stoxx 50 is currently up 3.84% at 4,399, the DAX is 3.14% higher at 16,093, whilst the CAC 40 has gained 3.94% to 7,392. The Eurozone trade deficit was almost eliminated in May as exports of chemicals and machinery picked up and the value of imported energy products (notably from Russia) declined. European inflation also showed signs of cooling as German wholesale prices dropped sharply in June.
Yields on 10-Year US government bonds fell sharply this week by 0.30% to 3.76%, as a strong decline in both headline and core CPI calmed investor’s interest rate expectations, with the terminal rate expected to be reached at the Fed’s next meeting.
Brent Crude is set to rise again, with a weekly gain of 3.66% on supply disruptions in Libya and Nigeria.
The Week Ahead
Monday – China GDP
Tuesday – US Retail Sales
Wednesday – UK CPI & PPI, European CPI
Thursday – US PPI Initial Jobless Claims
Friday – UK Retail Sales
*x% up/down to price as of last week’s close