This week
With German supermarket chain Lidl announcing it had sold enough bunting during May to line the entire coronation procession from Buckingham Palace to Westminster at least 75 times, it seemed that it was the job of central banks to carry on the theme this week, continually flagging that their battle against inflation is still far from done.
Flying the flag for the US, the Bureau of Labor Statistics released their Consumer Price Index (CPI) on Wednesday. The data showed that prices rose 4.9% in April on an annual basis compared with expectations of a 5% increase, the first time the gauge has fallen below 5% in 2 years. Month on month inflation rose 0.4% after gaining 0.1% in March.
However, if we examine the "core" inflation reading for April, which excludes volatile food and energy prices, this figure increased 5.5% on the year. Food prices climbed 7.7% over the year, the eighth consecutive month of slower price growth, although interestingly, monthly food prices declined.
After the announcement, futures are pricing in an 86% chance that the US Federal Reserve will leave rates unchanged during its upcoming June meeting, with 14% odds of another 0.25% hike.
The Bank of England (BoE) held a press conference on Thursday, announcing a further 0.25% rate rise, bringing borrowing costs up to 4.5%, their highest in 15 years. Interestingly, BoE Governor Andrew Bailey said the British central bank would "stay the course" as it seeks to curb the highest inflation of any major western economy. Despite the gloom, the BoE is no longer predicting a recession, making the largest improvement to its growth projections since it first published forecasts in 1997.
However, the bank now expects inflation, which remained above 10% in March, to fall more slowly than it had hoped, mostly due to unexpectedly persistent rises in food prices and consistently higher wage increases.
In company news, it was Disney that had left investors flagging, after announcing that streaming service, Disney+, lost four million subscribers during the first three months of the year. Fanning worries that the media and entertainment company's success in stemming losses at the business may be coming at the cost of growth, the home of Mickey Mouse and Star Wars dropped 8% on the day.
The company also announced it had plans to raise the price of the ad-free Disney+ service again this year and removal of certain low viewership content from its services to lower costs. Luckily for those fans of the Star Wars franchise, the platform will be maintaining the classic films as well as the new series of the Mandalorian. However, with Disney’s dwindling subscriber base, its true what they say…in space, no one can hear you stream…
Next week
The first full working week for a while could be a relatively quiet one when compared with previous weeks, with many central banks having already hosted their press conferences and given their outlooks for their respective economies recently. However, there is still a raft of economic data releases to keep investors interested.
The building blocks of the week should come from one of the most iconic buildings in the world as the Federal Reserve Bank of New York releases its Empire State manufacturing Index figures. Based on surveyed manufacturers in New York state, the data acts as a leading indicator of economic health, as businesses tend to react quickly to market conditions, with changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment. The survey is so well respected amongst economists due to its breadth, with over 200 respondents asked to rate the relative level of general business conditions.
Attention should switch to domestic shores by Tuesday as the UK releases its Unemployment Claimant figures. With the Bank of England (BoE) having noted how strong the labour market continues to be when giving the rationale for raising rates by a further 0.25% during the previous week, the data should make for interesting reading. Although the numbers are generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour market conditions. As mentioned, unemployment is also a major consideration for those steering the country's monetary policy, with the central bank failing to rule out further hikes in the future.
We will also see similar data released in the US towards the middle of the week, as those at the US Federal Reserve face similar issues to their English peers, with a persistently strong labour market forcing them to consider raising rates further.
The end of the week should act as a tale of two central bank chiefs, as Andrew Bailey, Governor of the BoE and Jay Powell, Federal Reserve Chair are both due to address the media. First, we have Andrew Bailey speaking at British Chambers of Commerce Global Annual Conference, in London, followed by his opposite number participating in a panel discussion titled "Perspectives on Monetary Policy" at the Thomas Laubach Research Conference, in Washington DC
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 12 May 2023.