This week
The world's largest pizza brand, Domino’s, responded to rampant inflation in its second largest market, India, by releasing the world’s cheapest pizza, coming in at just 49 rupees (53p). Although the ‘stripped down, seven-inch cheese pizza with a sprinkle of basil and parsley’ has certainly been topping financial headlines, it has been economists that have really had to earn their crust in what has been a busy few days.
Although unfortunately pizza prices are nowhere near as cheap in this country, the Office for National Statistics grabbed its own slice of the action this week, releasing figures showing a material fall in price rises, led by food and fuel costs. Headline Consumer Price Index (CPI) fell from 8.7% for May to 7.9% for June – much lower than the 8.2% forecast. Core inflation, which excludes more volatile sectors such as food, energy, alcohol and tobacco prices, often acting as the Bank of England’s (BoE) preferred gauge to monitor underlying price pressures, also dropped more than expected, coming in at 6.9% compared with May's three decade high of 7.1%.
The relief for investors was palpable, with the more domestically orientated FTSE 250 jumping nearly 4% on the news, whilst the FTSE 100 hit a 2-week high. With the data giving the BoE yet more food for thought, investors saw a heightened chance that the central bank will only raise rates by 0.25%, rather than a much touted 0.5% move, during its next meeting. With this in mind, sterling came under pressure, falling c.0.7% against the USD, whilst 2-year UK government bonds sank back down towards a yield of 4.9%.
Although inflation has already started to moderate in the US, it seems American consumers are not ready to start spending more dough just yet, as retail sales figures came in below expectations. Sales growth came in at 0.2% versus forecasts of 0.5%, dragged down by disappointing receipts from service stations and DIY shops, as well as lower spending on sporting goods, hobbies, books and musical instruments. Interestingly, the data showed us that online sales surged 1.9% – the most in six months. Further gains are likely after Amazon hosted its Prime Day promotion in July, which was the biggest on record.
Towards the end of the week, it was mining shares that were really delivering after Chinese authorities pledged to make their economy ‘bigger, better and stronger’ with a series of policy measures designed to help private business and bolster the flagging post-pandemic recovery. State news agency, Xinhua, announced that China will strive to create a market-oriented first-class business environment, quoting from the Communist government. This news allowed companies such as Anglo American Mining to jump over 3%, with the company also reporting a 42% surge in first-half copper production.
In other company news, it was another one bites the crust for Netflix as it announced it would scrap its basic plan in the US and UK, in which users could watch films and programmes without adverts. In a clear move to push subscribers to its advert-supported payment tier, the company is also cracking down on password sharing, forcing users who share an account outside the same home to pay an additional fee.
Next week
The coming week starts with a date every school child has had circled in their diary since around mid-September the previous year – the start of the school summer holidays. Whilst parents up and down the land wonder how to entertain their young ones for the next six weeks, a busy week of economic data releases probably won’t be top of the list but should make for interesting reading for those still working, nonetheless.
The first day of the week will act as anything but a holiday for those following the markets, as it brings with it a host of Purchasing Manager Index (PMI) data for all major western economies. Covering both the Services and Manufacturing sectors, the readings will cover Europe’s major economies, such as Germany and France, as well as the UK and the US. PMI data is really useful, purely from the breadth of its research, asking 650 purchasing managers to rate the relative level of business conditions for their firm, including employment, production, new orders, prices, supplier deliveries and inventories.
The second half of the week could end up being a tale of three central banks as the European Central Bank (ECB), the US Federal Reserve and the Bank of Japan (BoJ), hold press conferences, most probably announcing a fresh set of rate hikes in Europe and the US, although both seem to have been almost fully priced in by the market. First to go will be the Fed on Wednesday, followed by the ECB on Thursday and ending with the BoJ, not only giving hints as to future rate policy, but also detailing the data that led them to their decisions. All three banks will also give their outlooks for inflation and future rate policy – insights that could prove invaluable, with many commentators believing we could be coming to the end of what has been a historic fight against inflation over the past 18 months or so.
The week will be wrapped up with US monthly Core PCE Price Index numbers. Predicted to make quite the impact on the markets after its release on Friday, the data differs from normal inflation readings in that it only measures goods and services targeted towards and consumed by individuals. Adding even more importance to the figures is that this is reportedly the preferred piece of data for the US Federal Reserve, using it as their primary inflation measure.
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 21 July 2023.