This week

The past few days not only saw the start of a new week but also the first few days of July, the height of summer. With temperatures forecast to get red hot later in the month, it is perhaps no coincidence that the gemstone for the month is the Ruby, symbolising a feeling of contentment. Rubies are of course notoriously red, the name itself coming from the word ruber, Latin for red. A fitting colour therefore after a difficult week for markets, with unfortunately very little contentment to be found amongst investors.

It can be argued that a full spectrum of emotions was felt throughout the week, with Monday seeing a range of Final Purchasing Manager Index numbers released, covering the manufacturing sector for all major western economies. With a reading of above 50 indicating expansion, and below contraction, the gauge for the UK came in at 46.5, firmly in the red. Although slightly ahead of forecasts of 46.2, the numbers point to both new orders and employment suffering further declines. The data also showed that despite signs of price and supply chain pressures easing, client uncertainty and subdued conditions in domestic and export markets continued to weigh on company order books.

Although the early parts of the week were mostly subdued due to US markets closing in celebration of the red, white, and blue of their Independence Day, the following day saw the US Federal Reserve leaving investors simply black and blue, after releasing bruisingly hawkish minutes from their previous meeting. Although pausing their rate hike cycle during June to assess economic data further, the minutes showed that most Fed members expected they will need to tighten policy further in the coming months.

After the release of the Fed’s views, markets are now placing about an 85% chance of a 0.25% hike on 26 July (the Fed’s next meeting date) and about a 50/50 chance of another by November. U.S. 10-year Treasury yields climbed to a fresh four-month high later in the week, whilst the dollar extended its rise against major peers.

A war of words between the US and China over semiconductor materials also left technology stocks in the red this week. China's decision to restrict exports of two metals widely used in semiconductors and electric vehicles ramped up a burgeoning trade war between the two global superpowers, potentially leading to more disruption of global supply chains. On the news, the Philadelphia Semiconductor Index dropped 2.2%, with large US microchip manufacturers such as Intel and Texas instruments falling 3.3% and 1.8% respectively.

In what proved to be a colourful week for investors, especially in North America, the first Friday of the month brought with it US Non-Farm Payrolls, detailing the number of Americans starting a new job this month. With the data being mixed at best, a total of 209,000 Americans joined the workforce over the period, less than the 224,000 forecast. However, little respite was given to those who hoped for signs of inflation falling as average hourly earnings ticked up by 0.4%, above estimates of a 0.3% rise. With no clear theme from the employment data emerging, what the Fed will do next in terms of rates? Well that remains a grey area to say the least…

Next week

After an eventful week for global markets, there is little time to rest, especially for domestic investors, as the Bank of England (BoE) Governor, Andrew Bailey, will do his best to keep market commentators on their toes, even during the weekend.

Due to participate in a panel discussion titled "Central banks as lightning rods for crises" during a series of economic meetings in Aix-En-Provence, in France during Sunday morning, it looks like it could well be an early start to the week for economists. Being head of the central bank, Bailey’s words carry a certain weight to them, with investors scrutinising his words for any hints as to future rate policy.

Whilst having to work Sundays is rarely preferable, Tuesday will show us how many people are actively looking for work at all, with the Office for National Statistics releasing its claimant count data. The numbers will describe the number of people claiming unemployment-related benefits during the previous month and whilst the data is considered a lagging indicator, it acts as an important signal of overall economic health, with consumer spending is highly correlated with labour market conditions.

Economists will also have a job on their hands come Wednesday as not only does BoE chief, Andrew Bailey, reappear to hold a press conference about the bank’s Financial Stability Report, released the same day, there is also big news scheduled across the pond. US CPI data is set to be released on Wednesday afternoon, a set of numbers that could really set the tone for the remainder of the week. Falling headline inflation but persistent core inflationary price rises (stripping out more volatile sectors such as energy and food), have characterised the US economy during the first part of the year.

With the minutes from the US Federal Reserve’s most recent meeting showing that although their rate setting committee will examine upcoming data on its merits, they do see more hikes on the horizon. With a 0.25% hike nearly fully priced in by markets during the next meeting later in the month, and then a 50/50 chance of another such move later in the year, a strong reading this coming week could help tip the balance into make that second hike a formality as well.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used, you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 07 July 2023.