This week
Since antiquity, it seems humanity has been obsessed with the concept of flight. Ancient European texts tell us stories of men strapping birdlike wings, stiffened cloaks, or other devices to themselves and attempting to fly, typically by jumping from towers. Much like in Europe, the UK also suffers from a chequered history of aviation, writing in the 12th century, William of Malmesbury stated that a Benedictine monk attached wings to his hands and feet and flew a short distance but broke both legs while landing, also having neglected to make himself a tail…
Luckily flying has come a long way since 12th century Wiltshire, with the previous week having seen the most commercial flights globally take off in one day, with Thursday 6th July seeing a staggering 134,386 flights take to the skies. It was chocs away for the domestic economy this week as the Office for National Statistics released a host of employment data, showing that the labour market is still cruising at a high altitude. Growth in employees' average total pay (including bonuses) was 6.9% and growth in regular pay (excluding bonuses) was 7.3% during the period March to May 2023, equalling the highest growth for regular pay since records began.
There was a slight air pocket in that the unemployment rate increased by 0.2% during the quarter to 4.0%. However, with persistently high inflation still causing the Bank of England a headache, the mixed data should still not be enough to halt their plans to raise rates by at least 0.25% when they next convene.
More good news for the domestic economy was released the following day, as better than expected GDP signalled that the UK could avoid recession. The data showed that the economy contracted by less than expected in May despite the impact of strikes and an extra bank holiday to mark the coronation of King Charles, putting it on track to avoid a decline for the second quarter. However, there were signs that strikes in the health, rail and education sectors had dragged on output. With such strong data coming through for the UK economy, it was sterling that really took off, pushing through $1.31.
A flight from Heathrow to JFK Airport during the middle of the week allows us to analyse perhaps the biggest piece of data, during the week, US Consumer Price Index numbers (CPI). Helping the US Federal Reserve to chart a smooth landing when it comes to interest rates, last month’s inflation reading came in at 3% on an annual basis, its smallest rise in two years and coming in below forecasts of 3.1%. Although, core inflation (the gauge that strips out the more volatile sectors such as energy and food) did rise 0.2% to 4.8% annually. US market especially, rejoiced at the news with the tech heavy NASDAQ ascending 1.15% after the news.
Whilst CPI gains much of the attention, the Producer Prices Index can fly under the radio somewhat. Measuring the price companies and factories pay for their materials, the reading also showed that price rises are beginning to slow in the US, coming in at just 0.1% monthly, below forecasts of 0.2%. This week’s inflation numbers, although weaker than expected, shouldn’t deter the Federal Reserve from raising rates further just yet, with investors still firmly in the brace position for at least another 0.25% by the end of the year.
Next week
The coming week presents another busy few days for economists, waking up to a raft of Chinese data on Monday morning, being given the chance to evaluate just how much of a disjointed the reopening of the world’s second largest economy has been.
The beginning of the week will allow us to gauge the overall health of the Chinese economy through three pieces of data in total. Retail sales, industrial production and possibly the most important, Gross Domestic Product (GDP). The reading is so important for market watchers as it acts as the broadest measure of economic activity and the primary gauge of the economy's health. The data itself will measure the change in the inflation-adjusted value of all goods and services produced by the economy, giving us an insight into most facets of the Chinese post pandemic recovery.
From the world’s second largest economy, to its biggest, our next area of focus will be the US, as the Census Bureau releases its retail sales numbers. The data is so important as it allows us to examine what the primary gauge of consumer spending is, in turn accounting for most overall economic activity. The day will also bring us industrial production figures as well as housing market data, all adding to a much better idea as to the strength of the US economy.
Setting the tone on domestic shores, Wednesday will see our own inflation readings released, made even more important as the UK gets left behind by several other developed economies in terms of cooling price rises. With last month’s reading showing that prices failed to drop despite forecasts that they would, all eyes will be on the data this time around for any signs of inflation weakening. Investors will also be watching out for core inflation readings, (stripping out more volatile sectors such as energy and food) which were shown to have ticked up during the last announcement.
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 July 2023.