This week

The beginning of the week started with the distressing news that would bring a tear to even the least staunch of tea drinkers’ eyes, as reports came in that a lorry shed its load of McVities biscuits across a major road in Nottinghamshire. Littered with Ginger Nuts, Bourbons and Hob Nobs, traffic was partially blocked in both directions for up to 7 hours, as local police attempted to “digest “ the issue.

Much like the strewn confectionary across the road, many of which had been driven over by impatient commuters, it was crunch time in the bond markets, as the US Federal Reserve signalled it would raise rates at an even quicker pace. Wednesday saw the minutes released from its March meeting show deepening concerns among policymakers that inflation had broadened through the economy, with many policymakers commenting they were teeing up rises of 0.5% increments going forward.

They also generally agreed to cut up to $95 billion a month from the central bank's asset holdings as another tool in the fight against inflation. To put this into context, the pace of the planned balance sheet rundown is nearly double that of the Fed's "quantitative tightening" policy during 2017 to 2019. On the news, the tech heavy Nasdaq was down more than 2%, leading declines among the major indexes, with US 10 year treasury yields rising slightly, from 2.55% to 2.62%.

Some crumbs of comfort were offered to investors on Thursday as bond yields snapped a 4 day rising streak, giving some respite to stock markets. Investors agreed that the Fed are much keener to communicate exactly how they will proceed, leaving little in the way of nasty surprises for the market, allowing some semblance of calm to return. The gap between the two and 10 year segments of the US yield curve moved to its widest in a week, reversing a recent inversion that is often seen as a recession signal.

The word biscuit comes from the French “bis-qui” meaning twice cooked, and it was data on the continent that was indeed really hotting up this week. A host of Services PMI data made for pleasing reading, with Europe as a whole reporting consensus estimate beating expansion. However with the twin threats of inflation and the conflict in Ukraine, confidence going forward fell to its lowest levels since October 2020.

Rounding off the week was Halifax HPI data, detailing the monthly change in house prices mortgaged with the provider. Average UK house prices rose again in March for the ninth month in a row. The data showed an increase of 1.4%, the biggest jump since last September as last year’s strong momentum continued into the beginning of this year. This means that houses prices have risen on average 11% since last March, continuing to hit levels not seen since mid-2007. The new average price of £282,753 is up some £28,113 on a year ago, far outstripping wage growth to the annoyance of some.

Next week

With inflation the highest in 3 decades, business confidence at its lowest since the height of the pandemic back in 2020, it is difficult to predict what the Bank of England makes of it all. However with a raft of domestic economic data set to be released this week, we can at least see as a nation, what we are making.

 

Coming in the form of monthly manufacturing production, detailing the change in the total inflation-adjusted value of output produced by manufacturer and will serve as a leading indicator of economic health. Production reacts quickly to the ups and downs of the business cycle and is correlated with consumer conditions such as employment levels and earnings, making the data very useful for economists.

The building blocks of any strong economy lie firmly with consumer spending and so domestic retail sales, released on Tuesday, should make for fascinating reading. The coming week’s figures are based on a yearly basis and should be interesting in the way they detail current spending trends with those of a nation emerging from lockdown last year.

The middle of the week should see focus shift to the US, as the Bureau of Labor Statistics releases its inflation data. Having reached a 40 year high of 7.9% last month, many commentators believe that prices are set to rise even further before they start to subside later in the year. Inflation is one of the key indicators the US Federal Reserve look at when deliberating over future rate rises and will take on added significance now the central bank has made no secret about its desire to start hiking rates by 0.5% increments going forward.

Hot on the heels of the US data should come the our domestic yearly equivalent. Again, with inflation soaring and little sign of it abating, both sets of data should set the tone for the second half of the week.

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 April 2022.