All major market indices ended the week higher with a strong end to the week after the release of US Inflation Data on Friday. Investors were pleased to see the Fed’s favoured inflation measure, the core personal consumption expenditure (PCE) price index, fall to 4.6% year-on-year, indicating the US economy is showing signs of slowing. This may relieve pressure on the Fed when they consider whether to implement further rate hikes. The markets are currently pricing in a greater-than 80% chance that the Fed will raise a further 0.25% this month. US manufacturing data is being released today (Monday) and will also be closely watched.
In the UK inflation is seen as a bigger problem and Bank of England Governor Andrew Bailey speaking at the annual conference of the European Central Bank last week, hinted that rates in the UK might stay higher for longer than the markets are expecting. He mentioned persistent inflation and said rate decisions going forward would be “evidence driven”.
Quick look back at the first six months 2023: In the early part of the year inflation seemed to be tempering in the US and stocks rallied but a much-stronger-than-expected US jobs report in early February dampened speculation that the central bank might end its tightening campaign any time soon. This set stocks back throughout the month and into March. Since then equity markets have found their feet again fuelled by optimism that the Fed will end its series of rate hikes – the rally so far being led by growth and technology stocks, hence a strong outperformance by the Nasdaq. That’s where we are – with Inflation and Fed policy remaining the dominant focus for investors.
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