This week just ended

It’s that time of year again: flights booked, bags packed, passport double-checked for an early start to get to the airport on time. Escaping to the warmer climes of the continent is a staple of the Great British summer, with 16.5million sun-seeking Brits travelling to Spain alone last year. So news this week that all-inclusive package holidays have jumped more than 20% in price for Mediterranean hotspots such as Tenerife and Crete, is bound to take the air out of certain holidaymakers’ lilos…

Just as sun-seekers have been checking the weather forecasts for the summer, economists have been doing similar this week. Monday morning saw new economic data detailing the business climate in Germany. With a reading of 88.5 versus estimates of 90.7, not only was the data slightly disappointing, but also shows a second consecutive monthly drop. 

A weaker than hoped for Chinese reopening, looming US recession and ongoing monetary policy tightening seem to be weighing on German corporate sentiment. The growing feeling that Germany is in for a longer period of subdued growth seems to have reached German business. Both the current assessment and the expectations component fell in what was a chastening piece of data.

By contrast, American consumers are having their time in the sun, with a survey released on Tuesday showed that consumer confidence across the pond is its highest since early last year. The survey’s index rose to 109.7 this month from 102.5 in May, exceeding all estimates. While about 70% of respondents said a recession is “somewhat” or “very likely” in the next year, that’s the lowest share since late 2022.

The average cost per person for a family package of a week in Portugal is now said to be £1,000, up from £949 last year. Sintra, near Lisbon, hosted the European Central Bank (ECB)’s forum this week. The summit included addresses from key central bankers, including US Federal Reserve chair Jay Powell, along with Christine Lagarde, the head of the ECB, and Andrew Bailey, Governor of the Bank of England.

With each talking about their respective economies, the common theme in the speeches was that none seem to be finished with their hiking cycle, fearing that inflationary pressures are far from abating. Lagarde admitted that the ECB “cannot declare victory yet” on inflation, while in his speech Powell said “we believe there’s more restriction coming” - referring to rate hikes. Having raised UK rates by a surprise 0.5% last week, Andrew Bailey spoke at length about the Bank of England’s reasons for doing so, citing a persistently strong economy fuelled by a resilient labour market.

After the hawkish tone set by all three banks, investors continued to sell riskier assets this week, indicating that unlike those who are still determined to get some European sun this summer, balancing the global economy will not be a day at the beach.

 

Next week

The coming week sees us enter July, a month named in honour of the Roman General and stateman Julius Caesar back in 44BC - it being the month of his birth. Before the change of name, the month was referred to as Quintilis (Latin for fifth). It is with the number five in mind that that we examine what the coming week has in store.

Monday brings with it five key pieces of Purchasing Manager Index (PMI) data, detailing the results of a survey that asks businesses to rate business conditions including employment, production, new orders, prices, supplier deliveries and inventories. Covering both the manufacturing and services sectors for Germany, France, a European composite, the UK and US, the readings will give us invaluable insights about the global economy at the company level.

Then on Tuesday 4 July, US markets are closed in observation of US Independence Day. We can expect trading volumes to be below their average all week as US market participants either take the week off or sit by the sidelines until normal service resumes next week.

It will be in the US however, where the bulk of the second half of the week’s economic data will come from. The middle of the week will see the US Federal Reserve release the minutes from their last meeting. After choosing to pause its rate-hiking cycle at 5% - 5.25% last month, but signalling that there is still a long way to go in its fight against inflation, the minutes should make for fascinating reading. Look out for in-depth insights into the economic and financial conditions that influenced their vote on where they see interest rates going forward.

The coming week will likely wrap up with US non-farm payroll numbers, a key piece of information when determining the US central bank’s next rate move. This employment data will be accompanied by figures for 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 by 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 30 June 2023.