Global equities were higher last. The US S&P 500 broke a 3week run of losses as stocks bounced back from technically oversold conditions and on the back of optimism that inflation may be cooling – we note that the price of oil fell last week to its lowest level since Russia’s invasion of Ukraine. Signs of moderating inflation will raise hopes that the Federal Reserve might ease the expected rate of tightening over the coming months. Evidence may be forthcoming tomorrow (Tuesday) with the release of US CPI data.
The stock rally has extended at the start of this week on a weaker dollar and news that Russia has been withdrawing troops from parts of Ukraine.
The European Central Bank raised interest rates last week from 0% to 0.75%, the largest single hike ever for the ECB. ECB President, Christine Lagarde, said there would be “several” further rises to come to tame inflation but “probably less than five”.
Many analysts are expecting UK interest rates to rise to 3.0% by year end. Huw Pill, BoE Chief Economist, reminded us, “our remit is to get inflation back to target”, adding “we do have work to do”. Today, the UK’s 10-year Gilt yield is holding above 3%, the highest since 2011. Last Monday we noted that GBPUSD was close to breaking below the March 2020 price low and reaching its lowest level since 1985. By mid-week that had occurred, but a rally followed. The sell-off in the pair since mid 2021 has been largely due to the strength in the Dollar but going forward the deciding factors will likely be how the new UK government handles inflation and the current economic crisis.
UK Market Chart 9th September 2022
US Market Chart 9th September 2022
US Risk Barometer 9th September 2022
Europe Risk Barometer 9th September 2022
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