ACM Update 15-08-22
Halfway there? The UK looks likely to be moving towards recession territory, as per figures from the Office for National Statistics. UK inflation figures land this week, but those from the US last Wednesday showed a cooling, weakening the Dollar albeit temporarily.
To add to the “less than optimistic” outlook from the Bank of England at their most recent meeting, UK GDP figures for the month of June were released last week. The UK economy contracted at a rate of -0.1% when compared to the first quarter according to figures from the ONS (Office for National Statistics). The month-on-month figure came in at -0.6% which was largely attributed to falling retail sales and the extra bank holiday for the Queen’s Jubilee. One negative quarter, thus halfway towards a recession. Perhaps sooner than the Bank of England might have thought.
Speaking of which, MPC member and the Bank’s Chief Economist, Huw Pill, spoke at virtual Q&A session last week. He admitted concerns that the current aggressive hiking of rates will slow growth but hopes it will be a case of “short-term hit, for long-term benefit”.
Not the best week for UK data, but a relative status quo was maintained versus the Euro, with its own raft of energy-related issues at present. The Sterling-Euro picture for last week is illustrated in the chart below:
In the US, Joe Biden hailed it as “zero inflation July” after CPI data was released. Indeed, month-on-month figures for July showed inflation was flat for the month, a big change from last month’s 1.3% jump. The YoY figure came in at 8.5%, down from last month’s high of 9.1%. This has been largely attributed to a fall in gasoline prices in the US.
The Dollar weakened off as a result of the above, by 1% plus against GBP & EUR. We will still highly likely see another rate hike at the next Fed meeting (21st Sept), but the chances of it being a third consecutive 75 basis points, have drastically reduced. A 50 basis point rise seems the more widely expected outcome, but that could change given there will be further CPI figures (13th Sept) and Non-Farm Payrolls data (2nd Sept) between now and then.
Such is the strength of the Dollar though, that by the time markets closed on Friday rates were back to the same level as before the US inflation announcement. Movements for the week can be seen in the chart below:
The Eurozone was pretty much all on holiday last week, as is typical for the month of August. The only real release of note was German inflation data (MoM) which came in at 0.9%. Year on year, this is a slight drop from 7.6% last month to 7.5% this month, also largely attributed to a drop in fuel prices. Energy and food costs driven by the war in Ukraine, continue to be the main drivers. According to the IMF, German gas consumption was 15% below the average of the previous five years, in the month of July. Gas prices & usage are the big concern for the Eurozone as we move closer to winter.
The week ahead:
Monday – Rightmove House Price Index (00:00 UK time), French & Italian Bank Holiday.
Tuesday – Australian Monetary Policy Meeting Minutes (02:30), UK Unemployment (exp 3.8%) & Claimant Count Data (07:00), Canada CPI (13:30).
Wednesday – Reserve Bank of New Zealand Interest Rate Announcement (exp 3%, 03:00), UK CPI Inflation (exp 9.9%, 07:00), US Retail Sales (13:30), Fed Meeting Minutes (19:00)
Thursday – Australian Unemployment (02:30), Eurozone Final CPI (10:00)
Friday – UK Retail Sales (07:00), Canada Retail Sales (13:30)
The Rightmove House Price Index has already been released this morning, showing it’s first contraction of 2022, coming in at -1.3%. A slowdown in the housing market has been expected for a while admittedly, but perhaps not quite as sharply.
The main action from the US will be the minutes from the Fed meeting on 27th July. Committee members have been relatively transparent with their thoughts since, so this shouldn’t cause too much of a surprise.
All eyes on the UK really, with Unemployment (June), Inflation and Retail Sales (both July) all landing. Unemployment has found a stable footing of late, so we don’t expect too much of a surprise there. Inflation though continues its rise, with last month’s 9.4% expected to be usurped up to 9.9%. The question is whether it stays under double digits or not. A frightening prospect for a figure already at its highest level in 40 years.
The retail sales figures of Friday aren’t expected to fare much better, with a forecast of -0.2%. If true, this would be the third month-on-month drop in a row.
Any clients needing to buy GBP should reach out to the team this week as opportunities could well present themselves, dependent on how data releases transpire. Make sure to get in touch with any pending transactions you might have, as it could be a bumpy week despite the quieter August holiday period.
Have a great week.