This week

Known as Sagittarius A*, and with a staggering four million times the mass of our Sun, astrologers pictured for the first time this week, the gargantuan black hole that lives at the centre of our galaxy.

Measuring 40 million miles or so in length, it is lucky that the stellar mass resides some 26,000 light-years away, meaning we should never come into contact with it. Black holes are effectively matter that has collapsed in on itself creating a gravitational pull that is so strong, not even light can escape. A phenomenon that seems to be somewhat comparable to current inflation levels across most major economies, as the spectre of sharply rising prices continues to bring markets back down to Earth.

Wednesday saw Wall Street close sharply lower after US Consumer Price Index data provided mixed news. The numbers showed price growth slowed to 8.3% in April from 8.5% in March, suggesting that inflation may well have peaked. However, the reading was above the 8.1% analysts had expected and may not be enough of a fall to deter the US Federal Reserve from its steep rate hike trajectory. On the news, stock markets faltered as bond yields continued their march higher.

The USD continued to strengthen against a bucket of developed currencies, closing in on a 2 decade high. Interestingly the word sterling comes from the Middle English sterre, meaning star, plus the suffix ling meaning “little”, resulting in the term “little stars”, depicting the way the coins looked. As the dollar ascends, so the pound has acted as something of a falling star recently, plummeting to $1.23.

Not helping matters was data released on Thursday that showed the domestic economy grew by 0.8% over the first three months of the year but shrinking by 0.1% during March as the consumer began to cut back on spending. The economy however is still 0.7% larger than pre-COVID levels.

Markets did see something of a relief rally on Friday as investors took some solace from a press conference from US Fed Chair, Jerome Powell, who repeated his expectation of 0.5% interest rate rises at each of the Fed's next two policy meetings, while pledging that "we're prepared to do more". Markets reacted by lifting off from the 18 month lows touched during the earlier part of the week, with the global gauge for stock markets, inching up by around 1%.

In stock specific news, Apple lost its mantle as the world’s largest company by market capitalisation as investors continue to shun the technology sector. Saudi Arabian oil and gas producer Aramco has now reclaimed the top spot from the iPhone maker for the first time in almost two years, with rising commodity prices propping up the state backed entity’s share price.

It was also another busy week for earnings reports, with children’s entertainment behemoth, Disney, announcing mixed numbers. Although the media conglomerate’s Disney+ subscriber service saw much higher growth than analyst expectations, the company suffered the wrath of investor selling as it missed its overall earnings forecast. As they say in space, no one can hear you stream…

Next week

Addresses look to be the main focus in one way or another this week, as a slew of economic data accompanied by central bank press conferences, as investors attempt to get a handle on future rate policies.

Moving address should be on the agenda during the beginning of the week as Rightmove, the online estate agent, releases its House Price Index (HPI) data, detailing the change in the asking price of homes for sale on its website. Although this acts as the UK's earliest report on housing inflation, the data actually tends to produce a relatively mild impact due to asking prices and selling prices not always being correlated.

We then have an address from the Monetary Policy Report Hearing to look forward to, also on Monday. During these hearings the Bank of England Governor and several Monetary Policy Committee members testify on inflation and the economic outlook before Parliament's own Treasury Committee. The hearings are a few hours in length and can create market volatility for the duration. Especially noted are the direct comments made about the currency markets, a factor that will have investors scrutinising every word said.

Attention should switch across the pond as the week progresses with the US Census Bureau releasing its monthly retail sales figures. The data will act as the earliest and broadest look at vital consumer spending and will detail the change in the total value of sales at the retail level over the month. With inflation really starting to bite, the figures will be all the more pertinent to see if households have begun to tighten their belts in the face of rising prices.

The tone of the second half of the week could be set on Wednesday as domestic inflation data is made public, showing just how much prices have been rising on a yearly basis. Released by the Office for National Statistics, this is considered the UK's most important inflation data because it's used as the central bank's inflation target. With the cost of living reaching its highest in 30 years and predicted to hit 10% by the end of the year, the release should have a large effect on asset prices.

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 13 May 2022.