Inflation data was published in both the US and the UK last week and whilst the headline figures continued to trend lower, it was not as fast as analysts had expected. The US CPI figure slowed for a seventh consecutive month although the 6.4% exceeded expectations as housing costs including rent continued to surge[1]. Given the dominance of the shelter component in the overall inflation calculation, the pace of disinflation over the remainder of the year may not happen as fast as the Federal Reserve is hoping for. As for the UK, headline CPI fell for a third straight month although the 10.1% figure remains close to the four decade high seen back in October with food & drinks inflation still stubbornly high[2].
The mixed picture painted by the inflation figures prompted some volatility in equity markets with US indices initially rising before retracing their steps as the week progressed. The S&P500 ended the week -0.3% lower whilst the NASDAQ recorded a weekly gain of +0.6% with both indices losing ground following the publication of the CPI data. In Europe, both the MSCI Europe ex UK index and the FTSE100 rose by +1.6%, the latter benefitting from some weakness in Sterling. Meanwhile in Asia, the Nikkei 225 and Shanghai Composite declined by -0.6% and -1.1% respectively.
Moving to sovereign bonds, yields ticked higher as investor digested the inflation data and reassessed their future central bank rate forecasts. Domestic yields rose across the curve with the closely watched 10-year ending the week 11 basis points (bps) higher at 3.51%. Meanwhile in the US, the equivalent duration treasury yield rose by 7bps to 3.83% having hit a 3 month high on Friday.
In the commodity markets, oil prices retreated with Brent crude falling by -4.0% to $83.00 a barrel. That was despite some support coming from both OPEC and the International Energy Agency who raised their demand forecasts for 2023 due to a resurging China. Copper prices rose to $8,950 a tonne, reflective of those growing Chinese demand expectations whilst gold declined by -1.2% to $1,837 an ounce on the back of a stronger US Dollar.[3]
Week Ahead
Flash Purchasing Manager Indices (PMI’s) covering the first three weeks of February are released in both the UK and the Eurozone this week. Other domestic numbers to keep an eye on include government borrowing data for December and the latest House Price Index from Rightmove. As for the Eurozone, Germany releases its final revision of Q4’22 GDP on Friday whilst economic research institute ZEW publishes its closely monitored consumer and economic sentiment surveys on Tuesday. Moving to the US, the Federal Reserve releases the minutes from its last monetary policy meeting whilst in terms of data, Q4’22 GDP, existing and new home sales are the key figures to keep an eye on this week. There are no major macro figures due from either China or Japan on this occasion.[4]
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[1] Bureau of Labor Statistics, 20/02/23
[2] Office for National Statistics, 20/02/23
[3] Refinitiv, 20/02/23
[4] Forex Factory, 20/02/23
SJP Approved 20/02/23