This week
On the 21 June, visitors to the neolithic monument of Stonehenge were able to watch the sun’s rays rise through very heart of the stones. As any young boy born and bred in the area will tell you, the sun will rise behind the structure’s Heel Stone with its rays being channelled into the centre of the monument, during what the Druids call Alban Hefin – the Summer Solstice. With Wednesday seeing the Earth’s axis being the most tilted towards the sun it can be, many in the northern hemisphere enjoyed the longest day of the year. However, for some on Threadneedle Street, the day would have felt a lot longer.
Data released by the Office for National Statistics revealed that annual inflation had held at 8.7% from April to May, despite market estimates that it would fall to 8.4%. Perhaps more worryingly for the Bank of England (BoE), core inflation, the reading that strips out volatile sectors such as energy and food prices, continued to rise, hitting 7.1%, from 6.8% the month earlier. Interestingly, May's inflation numbers also reflected unusually big increases in air fares, second-hand cars, live music events and video games. Last month saw five concerts in Britain by American singer Beyonce and the launch of Nintendo's new Zelda computer game, both experiencing high demand, driving up prices.
There was at least some positive news for the BoE however, food and drink prices dropped slightly to 18.3% from April's 19%, led lower by cheaper milk, cheese, and eggs.
From the Heel Stone to bringing inflation to heel, Wednesday’s news put yet more pressure on the BoE, a day before the central bank was expected to raise interest rates for the 13th time in a row. There was still some room for a surprise however, with a more than expected 0.5% rate hike, with the BoE citing that there had been "significant" news, suggesting inflation would take longer to fall. It also seems that the problems stickier inflation can bring are now dawning for the bank’s Monetary Policy Committee, who voted 7-2 to raise borrowing costs to 5% from 4.5%, its highest since 2008 and its largest rate increase since February.
As the sun set on another busy week, economists were given plenty to shine a light on as a slew of Purchasing Manager Index (PMI) data was released on Friday. Detailing the results of a Survey of asking businesses to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries and inventories. Covering both the manufacturing and services sectors for Europe, the UK and US, the data was mixed to say the least with the domestic Services sector expanding, although not as much as hoped for.
In stock market news, the sun was shining on online grocer, Ocado, as rumours that it could be a takeover target for Amazon. It is understood that the US behemoth could be looking to make an offer after Ocado’s shares have fallen 40% or so over the past year, making the company a potential star performer on such depressed valuations.
Next week
With another scorching and sunny week predicted for the UK, the coming days should allow us to gauge whether inflation remains just as hot as the temperatures outside as another busy week for market watchers kicks off.
With temperatures predicted to hit 30c on Sunday, it’ll be the climate on the continent economists will be discussing the following day, as Germany releases its business climate results. The survey is highly respected due to its large sample size and historic correlation with German and wider Eurozone economic conditions, meaning that it often tends to create a hefty market impact upon release. About 9,000 businesses which asks respondents to rate the relative level of current business conditions and expectations for the next 6 months.
With inflation also hotting up in Canada, the nation’s central bank was recently forced to raise rates further, having paused their hiking cycle for 6 months previously. Tuesday brings us Consumer Price Index numbers for the country and should provide fascinating reading, especially if the data shows the central bank has further work to do to stabilise prices.
The middle of the week will be characterised by yet more central banks, this time their chiefs, rate setters from the US, Japan, Europe, and the Bank of England are all set to participate in a panel discussion titled "Policy panel" at the European Central Bank Forum on Central Banking, in Sintra, Portugal, With so many influential figures in the world of finance speaking, investors will scrutinise their speeches as they are often used to drop subtle clues regarding future monetary policy and interest rate shifts.
Wrapping up the week on Friday, we have the release of US monthly Core Personal Consumption Expenditures (PCE) Price Index numbers. 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 it reportedly gets the US Federal Reserve a little hot under the collar, with the numbers reportedly being the preferred piece of data for the central bank when gauging inflation.
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 23 June 2023.