Markets anticipating falling inflation in the US but slowing economy too

Markets anticipating falling inflation in the US but slowing economy too

Last week the Bank of England surprised markets by lifting interest rates by 0.5% (0.25% was expected) – its 13th consecutive hike. The UK central bank said they would lift rates higher if inflation pressure continued. This followed the release of UK inflation data earlier in the week which showed CPI at 8.7% in May which was unchanged from April and higher than market expectations.

Previous week the US Federal Reserve left interest rates unchanged. Markets are currently pricing in another hike in July and then possibly pausing for the rest of the year. Last week, Fed Chairman Jerome Powell gave no clue the US central bank would be cutting any time soon saying “inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” In contrast to that, the market is anticipating falling inflation. The Fed would prefer to see the labour market cooling more than it has so far, although there have been recent indications that this is coming.

A slowing US economy is also anticipated – the Conference Board’s Leading Economic Index “continued to fall in May as a result of deterioration in the gauges of consumer expectations for business conditions, ISM® New Orders Index, a negative yield spread, and worsening credit conditions” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

Over the week all major stock-market indices were lower.


UK Market Chart 23rd June 23

US Market Chart 23rd June 23

US Risk Barometer 23rd June 23

Europe Risk Barometer 23rd June 23


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