Week ending 12th May 2023.

Global equity markets failed to sustain the gains they made following the news that US CPI inflation fell below 5% for the first time since April 2021 and ended the week slightly lower due to recession worries.

In the US, initial jobless claims jumped to 264,000 (i.e. those making an ‘initial’ claim for unemployment insurance), which is the largest number since the last week in October 2021 – and clearly explains why the Fed was so eager to pause their interest rate increases.

In the UK, the BoE yesterday (11 May 2023), increased interest rates by a further 0.25% to 4.5% – and although this increase was expected, the guidance wasn’t!

In fact, BoE policymakers never fail to amaze us: despite the fact they still believe inflation will be materially below their mandated 2% target within two years, they said that they would continue to increase UK interest rates, and in the same breath they upgraded their February forecasts for economic growth by a massive amount (2.25% by mid-2026).

One can only assume they don’t have any debt: as we have previously explained, tens-of-thousands of two-year fixed-rate mortgages are due to expire over the course of the year after people rushed to move house two years ago in order to take advantage of the stamp duty holiday – and current mortgage rates are significantly higher than they were two years ago.  As this will mean our disposable income will shrink further, it is hard to believe the economy can continue to grow given the consumer accounts for around 60% of the UK economy.

And interestingly, today’s (12 May 2023) UK GDP reading showed the economy contracted by 0.3% in March – so much for the BoE’s upward growth revisions!

Looking ahead to the coming week we have UK employment data; US and Chinese retail sales; US, Eurozone and Chinese industrial production; US housing data; Eurozone and Japanese Q1 GDP; Japanese CPI inflation; and the Empire State manufacturing survey.

Investment Management Team