This week

During a week that was characterised by the last days of debt ceiling negotiations in Washington, the culmination of the ‘will they/wont they’ saga that has had investors, ironically acting like cats on a hot tin roof.

Ceilings where certainly the order of the day on Monday morning as Rightmove released their Housing Price Index for the UK, detailing all metrics of the domestic market under one roof. Asking prices for homes rose in May by 1.8% on a yearly basis, more than in any other month this year as a better economic outlook and steadier mortgage rates offset the impact of the Bank of England's interest rate rises. Rightmove said buyer demand was also 3% higher in May compared with the same month in 2019, before the pandemic distorted the market.

Staying the UK, with inflation having gone through the roof over the last year or so, Tuesday gave us the opportunity to gauge how much prices are still rising by, as the Office for National Statistics released its Consumer Price Index numbers. Prices rose by 8.7% in annual terms for April, down from 10.1% in March but still leaving Britain with the joint highest rate of inflation among Group of Seven advanced economies alongside Italy, estimates showed that prices were expected to fall by 8.2%. Government bond prices plunged as investors arrived at the opinion that the Bank of England will be forced to raise interest rates by another 0.25% next month and even maybe the month after that too.

Focussing on ceilings in the US, we headed into the previous weekend on something of a cliff-hanger, as reports broke last Friday afternoon that talks between the Democrats and Republicans had broken down just weeks before the crucial 1 June deadline, which could result in a catastrophic default. However, by this Tuesday, after a four-hour White House meeting, U.S. House Speaker McCarthy said negotiations had improved and would continue in the evening. He predicted the two sides would reach an agreement, though several issues remain unresolved.

With the deadline fast approaching and no concrete agreement in place, investors largely sat on the side lines during the week, dragging most major bourses down as they did so. However, by Friday it emerged that both sides were putting the final touches to a deal, allowing markets to regain some of their poise. It is worth noting that, each side will have to persuade enough members of their party in a narrowly divided Congress to vote for any eventual deal, no small feat with far-right Republicans saying they wouldn't back any deal without sweeping spending cuts. It seems any agreement would leave many details to be sorted out in the weeks and months ahead, so it’s understandable that market expectations haven’t become too lofty just yet…

Also coming in to raise the roof on Friday was US Personal Consumption Expenditure (PCE) Index numbers, reportedly the Federal Reserve’s favoured gauge of inflation. The core rate of PCE edged higher to 4.7% from 4.6% last month, compared to analysts' forecasts of 4.6%. it seems that with market reactions seemingly muted in the aftermath of the news, the data was hardly being cheered the rafters…

Next week

With yet another bank holiday shortening the coming week, this time in the observance of the start of Summer, we still have plenty of economic data and events to keep investors on their toes. With positive sounds coming out of Washington that a deal can be reached to raise their debt ceiling, it is a fair assumption that the first half of the week should be dominated by any news flow as the 1 June deadline fast approaches.

It is in the US we start, with the Conference Board releasing its Consumer Confidence numbers. The data is so important as financial confidence often acts as a leading indicator of consumer spending, in turn accounting for most of the overall economic activity. The numbers are harvested from about 3,000 households which asks respondents to rate the relative level of current and future economic conditions including work availability, business conditions and their overall economic situation, providing a very useful cross section of society.

In what could prove to be a very US-centric week, we finish the week off with a host of labour data from the world’s largest economy. Thursday brings unemployment benefit figures, detailing those who have filed for unemployment insurance for the first time during the past week. The numbers should dovetail well with Non-Farm Payroll figures released the day later. A key piece of information when determining the US central bank’s next rate move. The employment data itself will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend. It all combines to be a vital piece of data for the Federal Reserve and should take on added significance considering the extra impetus put on such data going forward from Jay Powell and co.

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 26 May 2023.