Stocks were lower last week and bonds fell.
Fed Chairman, Jerome Powell will speak at the end of this week at the Jackson Hole Symposium. In his speech last year he warned that higher interest rates would “bring some pain to households and businesses”. This year investors will be hoping for clues that the Fed will be taking their foot off the accelerator even if we have to accept the idea of current higher rates for longer.
That may be overly optimistic as minutes of the Fed’s July policy meeting showed that most participants “continued to see significant upside risks to inflation, which could require further tightening of monetary policy”. Treasury yields rose after the release and today (Monday) the yield on the 10-year Treasury has reached its highest level since 2007.
In the UK, inflation continued to decline last month. Data from the Office for National Statistics showed CPI fell to 6.8% but Core inflation (less energy and food) stayed unchanged from June at 6.9% and remains a problem for the Bank of England.
Pressure on the BoE is also coming from wage data which showed that average weekly earnings rose to 7.8% over the three months through June. The UK 10-year Gilt yield rose to a fifteen year high last week.
Economic data from China also weighed on global equity performance last week. The world’s second largest economy continues to weaken with industrial output growing at a slower rate than expected in July. Interestingly, the release of youth unemployment data, which hit a record high in June, has been suspended leaving investors to reach the obvious conclusion. There is also increasing evidence that the Chinese property market is turning down with Country Garden, a major developer on the brink of defaulting. In contrast to other Central Banks which have been raising rates, China has been cutting. The People’s Bank of China has today cut its one-year loan prime rate to 3.45% (from 3.55%) in a further bid to restore confidence. However, the move surprised economists who had actually been expecting more aggressive cuts.
UK Market Chart 18th August 2023
US Market Chart 18th August 2023
US Risk Barometer 18th August 2023
Europe Risk Barometer 18th August 2023
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