Market View from Realm Investment Management – Week ending 19th August 2022
Economic data out of China stalled the markets at the end of last week and weakness has carried over to the start of this week. The weaker-than-expected data and news that Chinese Covid infections had reached a three-month high prompted the country’s central bank to unexpectedly cut interest rates.
In the US on Thursday, St. Louis Fed President James Bullard seemed to throw cold water on the view of many analysts that inflation had already peaked saying it was “not statistically really in the data at this point“. He also indicated he would most likely vote for another 0.75% increase in the federal funds target rate at the next meeting. In response, US 10-year yields have since touched the 3% level again and the US Dollar has rallied (the Euro has fallen back below parity again today with EURUSD falling to its lowest level since late 2002).
Minutes from the Fed July meeting were also released on Thursday and indicated agreement among members that interest rates should continue to rise until inflation numbers had clearly pulled back. This may upset bulls who share the “inflation past its peak view” and projections that the Fed will cut rates again at the end of this year or early 2023. We will get an update from Fed Chair Jerome Powell later this week from the Jackson Hole symposium.
In the UK, inflation data came in at over 10% in July, a forty-year high and the highest inflation rate in the G-10. At the same time, UK consumer confidence fell to a record low over recession concerns. It is expected that the Bank of England will raise interest rates by a further 0.5% in September.
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