It was initially a difficult start to the week, driven in part by Friday’s higher than expected US CPI reading, which we discussed last week. However, we saw some green shoots from Chinese data this morning.
To start the week, UK GDP was released, showing a month on month contraction of 0.3%. Over much of 2021, money spent on vaccinations and Covid-19 testing made a large contribution towards the economy, and the end of free Covid-19 tests in April of this year will have caused a drag on GDP.
On Tuesday, we had average earnings (excluding bonuses) in the UK. The reading came in to reveal that, once inflation (CPIH) was accounted for, real wages fell by 3.4% in April (year on year). Whilst an erosion of spending power felt by UK consumers is not good news, we believe (and have reasoned many times in recent commentaries) that inflation will begin to ease over the medium term, and whilst remaining elevated, the relative buying power of our money will start to increase over time.
Overnight, we had pleasing data out from China – industrial production was significantly stronger than expected, and into expansionary territory. Retail sales data came in better than expected, even with the Covid-19 lockdowns this year in many large Chinese cities. Alluding to the data, China’s National Bureau of Statistics said that in May, the economy “showed a good momentum of recovery”, a good sign for Chinese companies that are in good health with pent up valuations.
To come back to my earlier point on US inflation, later today we have the Federal Reserve Open Market Committee meeting, where a rate rise is much anticipated. Followed by BoE on Thursday and BoJ on Friday.
Hannah Owen, Portfolio Specialist