This week

With temperatures pushing 35c by Friday, it seems the only thing rising as quickly as the mercury in the thermometer has been interest rates. As recessionary clouds start to gather, both the Bank of England (BoE) and the US Federal Reserve carried on their respective battles against rampant inflation by hiking rates again this week, warning that there could be many more to come.

After monthly inflation readings in the US overshot consensus forecasts last week, it seemed evitable that the Federal Reserve would be forced to hike rates at an increased level. The notion was proven correct on Wednesday as a 0.75% rise was announced, the largest such move since 1994.  In the immediate aftermath of the announcement, US markets actually rallied as Fed Chair, Jay Powell, commented that said rate hikes of that size were not likely to "be common,”. 

However, the elation was not to last long as the following day saw global stock markets resume their slide. Two other spates of policy tightening, one on domestic shores and the other in Switzerland, seemed to have sobered investors into focusing on the chance that economies could slow as rates rise. Our own BoE did not have any sunrises in store, announcing their 5th 0.25% in as many meetings, with the bank’s members voting 6-3 in favour of such a move. Interestingly, the 3 dissenters had voted for a shaper rise of 0.5%, a move that could come during the bank’s next meeting, as it warned inflation could now reach 11% during Autumn. 

The inflationary environment has even spurred the Swiss central bank into action, raising rates by 0.5% from -0.75% to -0.25% on Thursday. To put this into context, it is the first time the central bank has felt it has had to introduce a hike for over 14 years. 

With proceedings really heating up on Wall Street and Threadneedle Street, it was with some irony that it was in the land of the rising sun where rates were kept low. Friday saw the Bank of Japan maintain its ultra low interest rates and vow to defend its cap on bond yields with unlimited buying. On the news, the yen fell as much as 1.9% against the US dollar. 

In company news, a sombre tone(er) was set in the world of cosmetics, as Revlon, the 90 year old makeup company, was forced to file for bankruptcy. Revlon said supply chain disruptions in the spring prompted intense competition for ingredients used to make its products. The company has also been losing shelf space to newer brands over recent years as younger consumers continue to give it the brush off. Shares in the company fell as much as 44% after the announcement, shaking it to its very foundation. 

Next week

On the 21 June, for the past 5,000 years, visitors to the stone circle of Stonehenge have been able to watch the sun’s rays pierce the very heart of the stones. As any young boy educated in the area will be able to tell you, the sun will rise behind the structure’s Heel Stone, during what the Druids call Alban Hefin – the Summer Solstice. 

For economists however, the coming week presents UK inflation numbers, a piece of data that has been rising faster than the sun and twice as hot during the course of 2022. The data will measure price rises on a yearly basis and come hot on the heels of last month’s reading of 9%, a 40 year high. With the Bank of England (BoE) raising rates during their last meeting by another 0.25%, all eyes will be on the figures to see if prices rises are beginning to abate. If the data shows that prices rises show no signs of slowing, it could be the longest day for all involved. 

With the US Federal Reserve also trying to bring inflation to heel, Wednesday’s speech from Jay Powell, the Chair of the central bank, could also make for increased market volatility. Testifying at the Semi-Annual Monetary Policy Report before the Senate Banking Committee, in Washington DC, his words will be heavily scrutinised for any clues as to future rate moves. With the bank hiking 0.75% last week, their largest move since 1994, with more on the way, his words should take on added significance. 

As the sun sets on another week, focus should shift to domestic shores as a slew of Purchasing Manager Index (PMI) data is released. Numbers including the two main parts of the UK economy, Services and Manufacturing, are released simultaneously on Thursday. PMI is useful because it acts as a leading indicator of economic health, businesses react quickly to market conditions and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy. The data is also respected due to how comprehensive it is, asking about 650 purchasing managers to rate the relative level of business conditions surrounding their company, including employment, production, new orders, prices, supplier deliveries and inventories.