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This week

After a punishing few months for global stock markets, it was a relief for investors that it was just gas bills that were falling this week, as moves by the government to tackle the burgeoning cost of living crisis propped up consumer facing names.

Announcing a 25% windfall tax on oil and gas producers' profits on Thursday, alongside a £15 billion package of support for households struggling to meet soaring energy bills, the government aimed to remove the burden of spiralling energy costs.

The move, which will also give each domestic household a £400 discount on their energy bill and potentially more for lowest-income households, marks something of a change of heart for the Conservatives, who had previously resisted windfall taxes, branding them a deterrent to investment.

With some extra cash in the consumer’s pocket, it was clear where the market thought the money would be spent, with consumer discretionary sectors such as pub chains, retailers and even Aston Martin topping the list of risers after the news.

It wasn’t just bills this side of the pond that were falling, with US markets rallying on the back of slightly dovish news from the US Federal Reserve, sending the value of the US dollar bill lower. Minutes from the central bank’s latest meeting helped soothe investor worries over the impact of steeper interest rate hikes on economic growth, with policymakers seeming to favour smaller incremental rate rises.

Wall Street enjoyed a strong rally during the middle of the week and saw all three major US indices up a further 1.5% on Thursday, with consumer discretionary stocks also leading the way. Further adding to the hope that the consumer may still be in a good place was US retailer Macy’s, who raised its annual profit forecast, helped by increased demand for high-margin apparel. Bucking the trend of struggling retailers, the US department store said consumers were shifting back to in-store shopping from online faster than expected, ditching casual apparel for more expensive dresses, formal wear and shoes.

Heading up the week’s losers, it seems it was “post no bills” for FTSE advertising heavyweight WPP, falling over 10% during the beginning of the week, as better than expected results were overshadowed by a gloomier outlook. With inflation beginning to bite, many companies may look to cut their advertising budgets in the months ahead.

Next week

The coming week will be somewhat truncated by Jubilee celebrations here in the UK as the Queen celebrates 70 years on the throne. However before the bunting is rolled out, there are a few economic data releases earlier in the week that could set the tone as we head into June.

Although the US is closed on Monday due to Memorial Day, flying the flag for Europe, we have German retail sales data released on Tuesday. The stats themselves will measure the change in the total value of inflation-adjusted sales, stripping out volatile sectors such as automobiles. With inflation across Europe beginning to bite, especially in Germany, a nation heavily reliant on Russian gas, the numbers will make for very interesting reading as rising prices begin to stymie consumer spending.

The data will be accompanied by a slew of European manufacturing PMI readings for all of the continents largest economies. The data will be split out amongst component parts of the bloc, with Germany and France’s readings potentially having the largest impact on markets, alongside a collated version of the data for the Eurozone as a whole.

However, the crowning glory of the coming week will be found in the US, as the Bureau of Labor Statistics releases the nations Non-farm Payroll numbers. A key piece of information when determining the US central bank’s next rate move, it provides plenty for economist’s to get their teeth stuck into. 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, a vital piece of data as the Federal Reserve looks to continue its rate hiking policy seemingly well into the future.

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 27 May 2022.