The week just ended

Making a late surge to become the Oxford English Dictionary’s Word of the Year, “Barbenheimer” arrived in western lexicon this week. Celebrating the simultaneous theatrical release of two blockbuster films - Barbie and Oppenheimer - and their dramatic differences - one being a fantasy comedy about a childhood doll, the other being an epic, autobiographical thriller about the man who developed the first nuclear weapon - both have had something of a profound effect not only culturally, but financially too.

Monday saw Mattel, the creator of the Barbie doll, surge another 2% in the wake of the Barbie buzz engulfing its stock, adding to the 17% rally the toy maker had already enjoyed during the past month. Whilst it is true that the company will likely get a small cut of the movie's box-office earnings, the biggest benefit is expected to come from toy sales as the marketing blitz around its release could jolt the doll's sales out of a year-long slump, if only temporarily. Becoming the highest-grossing film for an opening weekend this year, it seems the enduring popularity of the 64-year-old doll remains intact.

From Barbie queues to barbecues, investors had plenty to digest as news from the US showed that farmers are raising the fewest cows for their beef since 1971. Ranchers have increasingly sent cows to slaughter as the drier weather over recent years has reduced the amount of pasture available for grazing. Tight supplies mean meat processors, such as Tyson Foods in the US, will pay elevated prices for cattle, passing the costs on to consumers, contributing to inflation as they do so.

By the middle of the week, the real box office news came from the US Federal Reserve, confirming a further 0.25% rate hike, increasing borrowing costs to a range of 5.25% to 5.5%, citing still elevated inflation as a rationale for what is now the highest rate in the US in 16 years. Although the language from the Fed was very similar to when they last spoke to the press during the previous month, they did remark that job gains remain "robust", whilst describing the economy as growing at a "moderate" pace - a slight upgrade from the "modest" pace seen before.

Jay Powell, Chair of the Fed, also remarked in his accompanying press conference that they no longer forecast a US recession and "we do have a shot" for inflation to return to target without high levels of job losses. Powell continued:

"We have a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession."

As the move was largely priced in by investors, market movements were minimal, with US stock indices barely moving after the speech.

Indeed, it only took a few hours for the central bank to be vindicated for their statement as US GDP data released the following day showed that the world’s largest economy is, much like Barbie, still in the pink. Gross domestic product (GDP) increased at an annual rate of 2.4% last quarter, up from 2% growth from the first quarter of 2023 and ahead of consensus forecasts of 1.8%. Although the Fed have made few concessions when increasing rates over the past 18 months, the underlying GDP figures show that outside the housing market and manufacturing sector, the US economy has remained largely robust.

Although the beginning of the week focused on the buzz around cinema projections, the end of the week concentrated on economic projections. Thursday afternoon saw the European Central Bank (ECB) also introduce something of an interlude, hinting that they will be pausing the rate-hiking cycle during September at a press conference on Thursday. Although the central bank, much like their US counterparts, introduced a well-telegraphed 0.25% rate rise, lifting borrowing costs to 3.75%, it was the forward guidance investors were focused on. ECB President Christine Lagarde said what comes next was in the balance, although the central bank was determined to "break the back" of inflation. "Do we have more ground to cover? At this point in time I wouldn't say so," Lagarde added, seemingly confirming that the end credits on the ECB’s fastest ever tightening cycle could soon be rolling.

This coming week

As July transitions to August in what has been a thoroughly disappointing summer so far weather-wise, it seems the Met Office are trying to make sense of it all. Having declared last week that the jet stream is culpable, coming in from the wrong angle and pushing low pressure - often characterised by cloudy skies and rain - we shouldn’t be expecting a heat wave any time soon.

This seems to be in stark contrast to the rest of the world, which has been enduring what is set to be the hottest July on record. With fewer places suffering more than China, which has registered the highest number of hot days over six months since records began. With the heat wave also leading to a record-breaking amount of electricity being produced, largely to fuel air conditioning units, both economists and weather forecasters will be asked just what they make of it, as China manufacturing PMI readings are released during the extreme weather. PMI figures can prove to be very useful for investors as businesses tend to react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy.

From a hot climate to an even hotter job market, Tuesday sees the release of US data measuring the number of job openings during the reported month, excluding the volatile agricultural industry. With a persistently hot employment market having been cited several times as the main reason for the US Federal Reserve having to pursue such aggressive rate rises, the second half of the week could prove vital for investors.

However, it is during the end of the week that we should gain the greatest insight into the job market for the world’s largest economy, as the US Bureau for Labor Statistics releases its non-farm payroll data. Often considered one of the Fed’s favoured pieces of information when determining their next rate move, we should expect heightened volatility come Friday afternoon during its release. 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 debate now emerging as to whether the Fed have now finished with their rate-hiking cycle as the economy begins to cool.

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 28 July 2023.