This week

Them's the breaks

As Boris Johnson stood outside the door to No.10, beleaguered by another tumultuous week in politics, the Chris Pincher affair being one scandal too many it seems, he uttered the words that would stoically stand out from his resignation speech.

An interesting turn of phrase, the origins of which can be traced back to a US term used in the game of pool or billiards. When the balls are racked up in formation, one player ‘breaks’ or takes the first shot to try and send the balls around the table. The results of this opening shot cannot be changed, with both players making do with what they are given.

Cue a bounce in the currency markets then, with sterling, which had fallen through $1.18 earlier in the week, on the news of Rishi Sunak and Sajid Javid’s departures, rebounding back to $1.20 shortly after the PM’s resignation. Removing some level of uncertainty from the political landscape after more than 50 combined party and cabinet members had resigned this week alone, the domestically orientated FTSE 250 also rallied, climbing nearly 1.5% on Thursday.

Interestingly, Johnson’s speech did not mention the words resign or resignation once, a gesture that followed the US Federal Reserve’s sentiment this week, who also left the words out of their lexicon when considering an upcoming recession. Cushioning investor expectations of further large rate rises to come, the bank’s minutes from their last meeting did acknowledge that:

“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,”

Interestingly, the minutes did not mention the risk of recession outright and in fact Fed officials said they thought data showed U.S. GDP "was expanding in the current quarter." On the back of what was slightly move dovish news than expected, the 3 main US indices made their way higher on both Wednesday and Thursday.

Friday showed that the labour market in the US is nothing to be baulked at, with no signs of recession just yet, as Non-Farm Payroll data highlighted that 372K Americans had gained employment this month vs consensus of just 260K. Average hourly earnings were however, bang on consensus growing at a monthly rate of 0.3%. 

Whatever the future of coming rate rises, both in the US and on domestic shores, signs the cost of living crisis is beginning to permeate every part of life are becoming ever more abundant. Data this week showed that British new car registrations fell 24% in June from a year earlier, marking the weakest month in 26 years.

Interestingly, the UK's electric vehicle count continued its growth streak, with a 14.6% increase in volume over the year, although plug-in hybrid vehicle uptake fell by 4,425 units, as a semiconductor shortage as well as other major stopping components halted vehicle production.

Them's the brakes as they say

Next week

As the sun rises on another week, it is only fitting we start in the land of the rising sun, which may be in stark contrast to bond yields in the world’s 3rd largest economy.

With the Bank of Japan vowing to maintain its unlimited bond buying plan in order to defend its 0.25% 10-year yield target, a speech on Monday from Haruhiko Kuroda, the Governor of the Bank of Japan, should have added importance, especially as a few weeks ago the yen hit a 24 year low against the USD. As head of the central bank, controlling short term interest rates, Kuroda has much influence over the nation's currency value. Those investors in the bond and currency markets especially will scrutinise his speeches for subtle clues regarding future monetary policy and interest rate shifts.

Of course, after the tragic events of Friday’s assassination of former PM, Shinzo Abe, the focus could well shift to the loss the Japanese public have endured.

Attention should switch to domestic shores during the middle of the week as monthly GDP figures are released by the Office for National Statistics. Acting as the broadest measure of economic activity and the primary gauge of the economy's health, the numbers should make for fascinating reading. With many predicting a recession on the way, investors will be watching very closely to see how the UK economy is holding up in the face of the cost of living crisis. 

The week will be wrapped up with US retail sales data, possibly the most important piece of backward-looking data we have, when assessing the strength of the consumer in the face of a growing cost of living. The numbers themselves will detail the change in the total value of sales at the retail level on a monthly basis, coming in two parts, core and non-core. Core numbers are watched a lot closer as they strip out more volatile parts of the markets, such as automobile sales, which tend to skew the figures.

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 08 July 2022.