US Inflation Slows as Debt Ceiling Concerns Gather Momentum

A week after the Federal Reserve hiked interest rates once again, US inflation data came back into focus last week. The headline index declined from 5.0% to 4.9% during April, modestly below expectations and the lowest level for two years whilst core inflation held broadly firm at 5.5%[1]. The data was certainly welcome news given the growing worries in Washington regarding its ongoing debt ceiling standoff. Negotiations between Democrats and Republicans have failed to yield much progression so far with discussions set to rumble on throughout this week. Treasury Security Janet Yellen has warned that without an extension to the ceiling, the US will run out of money to meet its obligations at the start of June.

Markets were understandably mixed, the S&P500 retreating by -0.3% whilst the NASDAQ added +0.4% thanks to strong performance from tech giant Alphabet[2]. US treasury yields also inched higher, the 10-year rising by 3 basis points to 3.47%. In Europe, the MSCI Europe ex UK added +0.1% whilst the FTSE100 declined by -0.3% in a week when the Bank of England voted through another rate increase of its own, this time by an additional 25bps to 4.50%. Meanwhile in Asia, the Shanghai Composite slumped by -1.9% on growing concerns relating to its own post COVID economic recovery whilst in Japan the Nikkei 225 added +0.8% with support coming from a series of strong company results.

Those China worries continued to weigh on oil prices, brent crude falling by a further -1.6% to $74.18 a barrel. Copper shed -3.9% with the metal concluding the week at $8,223 a tonne after China revealed a sharp drop in imports during April. As for gold, the precious metal was broadly flat at $2,010 a tonne with it facing some pressure from a slight uptick in the value of the US dollar during the week[3].

Week Ahead

Unemployment is amongst the standout data releases from the UK this week with the jobless rate expected to have remained unchanged at 3.8% during April. In the US, retail sales are due on Tuesday morning whilst the housing sector comes back into focus on Wednesday with building permits and housing stats published. Existing home sales are released a day later. On the Continent, revised first quarter GDP is the notable figure due with the economic growth set to be left unchanged at the previously estimated +0.1%. An industrial production figure was already released on Monday morning with the sector recording a sharp decline in activity last month. GDP data is also due from Japan whilst in China, it’s a particularly busy week with fixed asset investment, industrial production, retail sales and unemployment also out during the early hours of Tuesday morning[4].

Past performance is not indicative of future performance.

The value of an investment may fall as well as rise. You may get back less than the amount invested.

The value of investments may fall as well as rise purely on account of exchange rate fluctuations.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

The information contained does not constitute investment advice. It is not intended to state, indicate or imply that current or past results are indicative of future results or expectations.

Full advice should be taken to evaluate the risks, consequences and suitability of any prospective investment. Opinions provided are subject to change in the future as they may be influenced by changes in regulation or market conditions. Where the opinions of third parties are offered, these may not necessarily reflect those of Rowan Dartington.

Rowan Dartington is part of the St. James’s Place Wealth Management Group. Rowan Dartington & Co. Limited is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 02752304 at St. James’s Place House, 1 Tetbury Road, Cirencester, England, GL7 1FP, United Kingdom.

[1] U.S. Bureau of Labor Statistics, 15/05/23

[2] T. Rowe Price, 15/05/23

[3] Refinitiv, 15/05/23

[4] Forex Factory, 15/05/23

SJP Approved 15/05/23