Week ending 7th April 2023.

This week’s economic data was like a comforting bowl of Goldilocks’ porridge, in that it wasn’t too hot or too cold:  economic growth is clearly slowing, but it isn’t collapsing.

This suggests to us that central bank policymakers will be inclined to slow their aggressive interest rate increases and more importantly, may look at reducing interest rates before the year is out – which should be positive for global equities.

As with the ISM manufacturing reading on Monday (3 April 2023) please see here, the ISM services index came in below market forecasts.  Although still above 50 (the line separating expansion and contraction) the 51.2 reading for March compares to 55.1 in February and economist expectation of 54.4.  Looking at the sub-components of this index, while new orders did fall sharply from 62.6 to 52.2, on a positive note employment dropped to 51.3 from 54 and prices paid declined to 59.5 from 65.6 (the lowest level since July 2020), suggests that the tight US employment market is finally starting to cool, while underlying inflation pressures are declining.

In fact, in the US employment data (released when US markets were closed on Friday 7 April 2023) there were clear signs that that the employment market is starting to cool.  Although non-farm payrolls grew at 236,000 in March (in-line with economist expectations), the participation rate (which shows the percentage of the US population that is either working or looking for work) increased to 62.6% and wage growth continued to slow – in fact, the 4.2% year-on-year reading for March was the lowest since June 2021.

Looking ahead to this coming week we have US & Chinese CPI & PPI inflation; US & Eurozone retail sales; US, UK & Eurozone industrial production; UK GDP for February; and the University of Michigan consumer sentiment index.

Investment Management Team

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