Market focus shifting from inflation to debt ceiling

Market focus shifting from inflation to debt ceiling

Market review – week ending 12th May 2023


Stocks were generally flat to slightly lower last week.

Inflation has been the main focus for investors for months but there was encouraging data last week. In the US, the rate of annual inflation fell to 4.9% in April; below 5% for the first time in two years and may give the Fed room to pause rate hikes next month. That’s the market implied expectation and looking further out, rate cuts are anticipated before the end of the year – this in contrast to what the Fed seems to be thinking, e.g. John Williams, New York Fed President, said last week he was not expecting a rate cut this year. US Core inflation, which excludes food and energy, and the Fed’s favoured measurement, also fell slightly to 5.5%.

It seems that on a fairly regular basis over the years the US debt ceiling becomes a major issue and this is once again back in play. The amount of debt that the US government can issue has a limit and this ‘ceiling’ was reached on 19th January. The ‘X-date’ (possibly early June) is the last date that the ceiling can be raised and a default can be avoided. Once again, the decision could well go to the wire with accompanying market volatility.

The Bank of England raised the base rate last week by 0.25% to 4.5%, the 12th consecutive hike in an ongoing battle with inflation – the central bank expects CPI inflation “to fall sharply from April”.

The Office for National Statistics reported that the UK showed a 0.1% increase GDP in Q1 and although barely an increase, it was nonetheless positive. This was the same as the last quarter in 2022 and has prompted some commentators to say the UK is holding onto growth by its fingertips. On a monthly basis GDP fell by 0.3% in March.

UK Market Chart 12th May 2023

US Market Chart 12th May 2023

US Risk Barometer 12th May 2023

Europe Risk Barometer 12th May 2023

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