Week ending 15th July 2022.

Despite ending the week slightly down, Friday ended the week strongly as markets started to rein in its expectation for Fed rate rises.

In an early week data release, a measure of Chinese Exports came in 17.9% higher than the year before. This reading was higher than last month’s reading, and considerably higher than forecasts. This is the fastest pace in five months, due in part to the easing of supply chains that were caused by Covid-19, and plagued inflation.

In the US, CPI inflation increased to 9.1% for June, higher than the previous reading of 8.6%. The market’s eyes will be looking towards the Federal Reserve ahead of their interest rate decision on 27th July. Given the drivers behind inflation, we still believe that interest rate increases will be measured and gradual.

We had the release of UK GDP for May, which showed positive growth. The UK grew by 0.5% in May, this figure is significantly above April’s reading of -0.2, slightly into contraction territory. May’s GDP was driven by health output, boosted by NHS appointments. Some areas weighed on GDP, but a strong gain in the construction and manufacturing elements of data could reflect a welcome impact of supply chains continuing to ease.

Sticking with supply issues (and the easing thereof), there have been positive talks this week (hosted by Turkey) regarding a resolution to the blockage of Ukrainian grain exports. Ukraine has been coined as “the breadbasket of Europe”, given the high proportion of the world’s grains that come from the country’s fertile land; the release of some of these grains should help to ease some pressure behind inflation.

Exactly seven days after the resignation of UK Prime Minister, Boris Johnson, the president of Sri Lanka, Gotabaya Rajapaksa, handed in his notice following protests in the country over his alleged mismanagement of the economy. The country is struggling with shortages of food, fuel and other basic supplies.

In further political turmoil, Mario Draghi, widely respected Prime Minister of Italy, offered up his resignation on Thursday after an ally withdrew support. The President of Italy rejected his resignation, and asked him to return to Parliament to see if he could still command a majority. Although his resignation was foiled, this may cause some uncertainty in Italian markets.

So, Johnson, Rajapaksa, Draghi – that makes three attempted leadership resignations in seven days, two successful and one not quite. As Meat Loaf sang, “two out of three ain’t bad”.

Also this week, Prime Minister of Japan Fumio Kishida made it known that he wants to start up nuclear reactors (reportedly up to nine) – this will aid with global energy supply, as it will reduce Japan’s import requirements. This is to help the possible power shortages in Japan ahead of winter. Following the invasion on Ukraine, Japan is cutting its use of energy from Russia.

Next week the ECB are expected to raise interest rates, we’ll have the release of Eurozone and UK CPI and Eurozone consumer confidence, and Nord Stream 1 is due to reopen.

Investment Management Team