This week

With the first Glastonbury for 3 years taking place over the weekend, the often euphoric vibes of the festival failed to translate to investors over the week, with a slew of negative economic data contriving to take centre stage.

The week had started in positive fashion as US data such as core durable goods orders and pending home sales became the perfect warm up acts, each coming in ahead of consensus. Coupled with news that China was beginning to ease its Covid restrictions, it all sounded like music to investors ears, as European markets scaled a 2-week high, led primarily by the mining sector.

However, the headline act was to come in the form of US consumer confidence numbers, released on Tuesday. Data from a survey of 3,000 US households, asking respondents to rate their relative view of current and future economic conditions, showed a worrying fall in expectations, adding to fears that soaring inflation is starting to have a real impact on consumer spending. Buoyancy fell more than expected for June’s reading, with the forward looking expectations component of the survey bearing the brunt of consumer bearishness, taking it to its lowest level since 2013.

Whilst veteran rocker Paul McCartney was wowing crowds in a field in Somerset over the weekend, the equally seasoned Rolling Stones were doing the same in Hyde Park, celebrating 60 years since their first gig in London. Unfortunately, investors were able to obtain a glimpse of what life might have been like back then from an economic standpoint, as the US S&P 500 and NASDAQ indices looked set for their worst first half of a year in over 5 decades.

A speech from US Fed Chair, Jay Powell, on Wednesday painted a pretty black picture, commenting that there is a risk the US central bank's interest rate hikes could slow the economy too much. Vowing not to let the world’s largest economy slip into a "higher inflation regime", even if it means raising interest rates to levels that put growth at risk, it seems the central bank are setting expectations for another 0.75% rate rise after their meeting next month.

Towards the end of the week, it was very much a case of Gimme Shelter as the domestic housing sector gave some cause for cheer. Data from the Nationwide building society showed that UK annual house price growth slowed modestly to 10.7% during June, down from 11.2% in May. Although experiencing its 11th consecutive monthly increase, there were some tentative signs that the housing market may be cooling, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels.

Next week

The coming week should start on a fairly subdued note across the pond as the US celebrates Independence Day, meaning their markets will be closed.

However, with last week’s data showing that the outlook is becoming cloudier for the US consumer, the coming week should start by giving us a better gauge of what European investors make of current economic conditions.

Monday sees the results of a survey from around 2,800 investors and analysts, all of which have been asked to rate the relative 6-month economic outlook for the Eurozone, acting as a leading indicator of the economic health for those in the bloc. Investors and analysts are highly informed by virtue of their job and changes in their sentiment can be an early signal of future economic activity, leading to an amplified impact of the data when it is released.

The following day should quite literally tell us what they been making of it all in Europe, as French monthly industrial production is released. The data, whilst important in its own right, is accompanied by a slew of European PMI data, covering both the services and manufacturing sectors.

Hopping across the channel to domestic shores, Tuesday brings us an address from Bank of England Governor, Andrew Bailey. Speaking at a press conference about the Financial Stability Report the bank will be releasing, his words should take on added significance as inflation levels in the UK really start to bite. The market is now pricing in an 80% chance that the bank will raise rates by 0.5% during next month’s meeting and will cause many investors to scrutinise his words for any clues as to future rate policy.

The end of the first full week of the month brings with it as ever, US Non-Farm Payroll data, released on Friday. 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 as the Fed evaluates how to combat the record levels of inflation currently engulfing the US economy.

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 July 2022.