US equities continued to make gains last week after the latest CPI data showed inflation falling to its lowest level since 2021. Headline US CPI retreated to 4.1% during May[1], a reduction of -0.8% on the prior month and a figure below expectations thanks to a drop in energy prices and slower food price rises. 12 months ago, US inflation peaked at 9.1% with the Federal Reserve (Fed) responding through rapid interest rate hikes to try and bring CPI back to its 2.0% target level. Last week, the Fed paused that hiking programme[2] as it looks to take stock of the current economic situation and the impact that its recent actions have had so far. US equities responded positively to the inflation data with the S&P 500 rising by +2.6% and the tech-heavy NASDAQ gaining by +3.3%.
Last week was a strong one for global equities in general with most major markets concluding the week in positive territory. Focusing on Asia, the Nikkei 225 in Japan maintained its own impressive streak with a +4.5% weekly rise after the Bank of Japan retained its highly accommodative monetary policy stance[3]. Chinese equities also advanced, the Shanghai Composite adding +1.3% after the country’s central bank cut interest rates to help stimulate its post COVID economic recovery. As for Europe, the MSCI Europe ex UK index rose by +1.6% whilst in the UK, the FTSE100 added +1.1%.
Moving to sovereign bond yields, strong employment data in the UK spurred an additional jump in rate expectations. Yields rose across the curve, particularly at the short end where the two-year security spiked by 39 basis points (bps) to 4.90%. Elsewhere, the pause in rate hikes in the US left the 10-year treasury yield little changed at 3.77%, a 2bp increase over the prior week whilst on the Continent, the Eurozone 10-year benchmark security rose by 8bps to 2.46%.
Concluding with commodities, oil prices bounced back after two consecutive weeks of losses. Brent crude jumped by +2.5% to $76.71 a barrel on stronger Chinese demand data with copper prices also benefitting from the China demand dynamic, the metal finishing the week at $8,555 a tonne after a +2.5% rise. With risk assets firmly in the ascendancy, gold was somewhat middling with the precious metal declining by -0.2% to $1,959 an ounce despite a bout of weakness in the US Dollar[4].
Week Ahead
After last’s week bout of central bank meetings, it’s the Bank of England’s turn with the Bank expected to raise interest rates once again as the UK continues to battle with elevated inflation. It’s also a busy week for domestic data releases with CPI inflation, retail sales and flash Purchasing Manager Indices (PMI’s) all due before Friday’s conclusion; flash PMI’s are also due in the Eurozone this week. In the US, it’s a busy week for housing sector data with building permits, housing starts, and existing home sales figures released across Tuesday and Thursday respectively. Japanese focus will likely be on the release of the minutes from last week’s Bank of Japan monetary policy meeting whilst in China, there are no major data releases due on this occasion[5].
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[1] U.S. Bureau of Labor Statistics, 19/06/23
[2] Federal Reserve, 19/06/23
[3] Bank of Japan, 19/06/23
[4] Refinitiv, 19/06/23
[5] Forex Factory, 19/06/23
SJP Approved 19/06/23