This week just ended

It’s been a week many food lovers won’t be able to forget in a hurry as pasta lovers across the globe have been warned that they must brace for even higher prices for their favourite dish. The severity of the situation has already prompted Italy’s government to call a crisis meeting back in May as prices for the staple food continue to rise twice as fast as the national inflation rate.

A further drought in Canada and bad weather in Europe has damaged crops of durum wheat and reduced supplies available to flour millers and food companies, with supplies close to their most sparse in three decades. However, it hasn’t just been the price of Italian foodstuffs reaching boiling point recently, as the pasta week also provided food for thought for investors.

Even though the beginning of the week started on a muted tone on domestic shores, in observation of the Summer Bank Holiday, across the pond in Jackson Hole, Wyoming, central bankers were busy giving their views on the global economy. A penne for the thoughts of Jay Powell then, Chair of the US Federal Reserve, who spoke over the weekend.

"We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,". "It is the Fed’s job to bring inflation down to our 2% goal, and we will do so."

But with "signs that the economy may not be cooling as expected," including "especially robust" consumer spending and a "possibly rebounding" housing sector, Powell said that above-trend growth "could put further progress on falling inflation at risk and could warrant further tightening of monetary policy." While not as hawkish as the message as he delivered this time last year, Powell's remarks still had an impact, with investors now seeing one more rate hike by the end of the year more likely than not.

From pasta to paella, Thursday gave economists the chance to check up on inflation in other European economies, including Germany, France, and Spain. The data suggested that inflation did hold steady this month, with underlying price growth falling for the bloc, much as expected by economists. After the data was released, investors began to price in just a 30% chance of a 0.25% hike in September from the European Central Bank, compared with a 60% chance expected a day earlier.

The theme of inflation carried through Thursday as the US Bureau of Economic Analysis released their Personal Consumption Index numbers, a reportedly favoured piece of economic data of the Federal Reserve when judging future rate policy. Consumer prices increased 0.2% on a monthly basis, in line with June’s increase and market expectations. However, hopes that the Fed will be able to pause its rate hiking cycle just yet were al dente’d, with the news that consumer spending had accelerated alongside prices of those so-called “supercore” services jumping 0.5% over the month.

The first Friday of the month brings with it a US Non-Farm Payrolls, a particular favourite of the US central bank and economists alike when judging the strength of the American labour market. The data proved to be a mixed bag, with 187,000 Americans joining the workforce last month, more than the 169,000 forecast. However, a rise in the unemployment rate to 3.8% and moderation in wage growth pointed to an overall easing in labour market conditions. Whilst the data looks to have bolstered expectations that the Federal Reserve will stand pat this month in terms of rates, the data still seems strong enough that a rate rise could still be on the card over the next few months orzo…

This coming week

The coming week should not only usher in some hot news on the economic front but also something of an Indian summer for those in the UK, with temperatures predicted to reach close to their highest all year. Unfortunately, arriving just in time for the end of the school summer holidays, those who missed out on a nice European getaway will at least have a chance this coming week, as we receive investor confidence figures for the continent.

With China’s much touted reopening after the pandemic having disappeared behind a cloud, the stuttering economy has been having a major impact on European manufacturing, a sector that has a great deal of exposure to China’s fortunes. The results will be interesting, allowing us to examine how this has affected the 2,800 investors surveyed on the continent, all giving their views on the 6-month outlook for their respective economies. The data itself acts as a leading indicator of economic health as investors and analysts are usually highly informed by virtue of their job, with changes in their sentiment representing an early signal of future economic activity.

In what is a quieter week than usual, largely due to US markets observing the Labor Day bank holiday, our next piece of key data should come on Thursday, once America has returned to work, measuring just that, the number of Americans looking to return to work. US unemployment claims form an important part of the overall labour landscape, helping us to understand just how difficult the current environment is when looking for a new role. The data has taken on added significance over recent months as the US Federal Reserve becomes increasingly data dependant, focussing on labour market strength when formulating future rate policy.

The week should be wrapped up by a trip back to Europe as attention turns to the European Commission and their economic forecasts for the bloc. The data is so respected due to its sheer breadth, including economic forecasts for EU member states over the next 2 years, covering more than 180 variables.

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 01 September 2023.