Week ending 14th April 2023.

Global equity markets finished the week higher following US CPI inflation data, which suggested that this monetary tightening cycle is nearing its end.

Last week’s US employment data left the door wide open for another increase in US interest rates when policymakers meet on 3 May 2023, but that door is now only slightly ajar as March’s US inflation reading came in at 5.0% – a massive deceleration from February’s 6.0% reading.

Additional optimism that peak US interest rates are close came from comments made by Fed policymaker, Austan Goolsbee (the Chicago Fed President), as he warned that policymakers need to be cautious and evaluate the economic impact of tighter credit conditions on the economy – a clear reference to the fact that the recent banking turmoil has highlighted the economic fragility caused by the sharp increase in US interest rates over the past 12 months.

Furthermore, the Bank of America’s Consumer Checkpoint publication showed that household credit and debit card spending fell 1.5% in March compared to February and is now only 0.1% higher than it was 12 months ago, while today’s (Friday 14 April 2023) US retail sales data contracted more than economists expected.

These readings are important as consumer spending accounts for just over two-thirds of US GDP – and so these weak readings make (as we have been forecasting) a mild recession inevitable – especially, as discretionary spending will continue to suffer as spending on essentials, such as food, energy and mortgages, keep rising.

Looking ahead to this coming week we have US housing and mortgage data; UK employment; UK & Japanese CPI inflation; UK & Chinese retail sales; Chinese Q1 GDP; US, UK, Eurozone and Japanese PMI; the Empire State manufacturing survey; and the Fed’s Beige Book.

Investment Management Team