This week

Now all the Easter eggs have (presumably) been found and the festivities ended for another year, it’s time to shift attention to that other great Spring tradition, the Grand National. Dating all the way back to 1839, when the interestingly named horse “Lottery” won it for the for the first time, the annual event has served up many memorable moments over the years. It is with this in mind that the previous week has had something of an equine feel to it, with a great number of runners and riders playing their part in helping markets rebound after March’s falls.

After Monday was a complete non-starter for markets due to Easter Monday celebrations, we were finally out the gate in terms of meaningful economic data on Wednesday, with the US releasing its inflation data. The statistics showed that consumer prices were pretty stable for March, as the cost of petrol declined, but stubbornly high rents kept underlying inflationary pressures a major hurdle. Interestingly, the cost of food consumed at home in the US fell 0.3%, the first decline since September 2020. Egg prices tumbled 10.9% with meat, fruits and vegetables all falling in price.

Further US data released later in the week, served to further the narrative that inflation was beginning to abate. Producer Prices, the amount companies pay for their goods, unexpectedly fell during March by -0.5% against expectations of the reading, pulled down again by falling fuel prices.

For domestic investors however, the mane event was on Wednesday as UK Gross Domestic Product (GDP) figures were released. The data showed that the economy stagnated during February as strikes by public workers hit output, but the bounce in January was stronger than first thought, meaning a recession is now slightly less likely during the first half of the year. The data was disappointing however when compared to the 0.1% growth forecast for the period.

Sometimes if you want a view on the economy, you’ve got to hear it from the horse’s mouth, a pleasure afforded to investors during the week as Bank of England Governor, Andrew Bailey, spoke at the International Monetary Fund’s Spring meetings in Washington DC.  Playing down the risks of a system-wide banking crisis after the collapse of SVB in the US and Credit Suisse in Europe last month, he seemed to pave the way for further interest rate increases to combat the UK’s high inflation levels.

He went on to say that the bank’s Monetary Policy Committee took account of any dislocation to credit markets caused by bank failures to the extent they influenced inflation. “But, what we have not done – and should not do – is in any sense aim off our preferred setting of monetary policy because of financial instability. That has not happened.”

As the week entered its final furlong, it was sterling that was ahead by a length, hitting a 10-month high against the US dollar on Friday. Now touching $1.2546, sterling has been on the road to recovery since September when it hit an all-time low of $1.0327 after the doomed Truss-Kwarteng mini budget. With inflation seen as weakening over the coming months as recession hits, will sterling hold onto the gains? That is the equestrian…

Next week

The first full working week for a while brings with it a host of economic data, a tall order for any economist.

Speaking of tall, the first piece of economic data comes directly from one of America’s most iconic buildings as the Federal Reserve Bank of New York releases its Empire State Manufacturing Index numbers. The data itself acts as a leading indicator of economic health as businesses react quickly to market conditions, with changes in their sentiment possibly being an early signal of future economic activity such as spending, hiring, and investment. The data is so respected due to the breadth of the survey, with 200 manufacturers in New York state asked to rate the relative level of general business conditions.

Focus should then shift on to the UK, as domestic unemployment claimant counts data is made public on Tuesday. Although it's generally viewed as a lagging indicator, the strength of the labour market is an important signal of overall economic health because consumer spending is usually highly correlated with labour conditions. With another 0.25% rate rise in the balance from the Bank of England, the data should make for fascinating reading.

The picture for the domestic economy and whether another rate rise is on the way should be enhanced by the middle of the week as the Office for National statistics released its inflation data. With double digit inflation having become the norm since the summer of last year in the UK, many will be hoping that price rises will finally start to abate as the cost of living crisis continues to take its toll on both the consumer and the high street.

The week will be rounded off by a host of PMI data, covering both the Manufacturing and Services sectors for all the major European economies, including Germany and France, as well as the US and the UK, giving us a better gauge of how companies are seeing their current respective economies.

 

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 14 April 2023.