Trading volumes were low this week as our friends across the pond celebrated the 4th July.
On Monday, we saw both Saudi Arabia and Russia announce further oil production cuts. Their hope is that by reducing supply, they will support a higher oil price, which has fallen significantly from roughly $130 a barrel (Brent) in March last year to around $75 today. The cut is the latest in a series of similar announcements, which so far have had little effect on boosting prices. The current uncertain macroeconomic environment has led many oil traders to question oil demand in the year ahead.
I am sure central bankers will be pleased to see the muted reaction to the news. The fall in energy costs seen in recent months has done some of the heavy lifting in bringing inflation down and the last thing we need now in the battle against inflation is a strong reversal of this trend.
It was pleasing to see the announcement this week that a fuel oversight body will be set up to monitor the prices we pay at the pump to increase price transparency. The news comes as supermarkets have been accused of taking advantage of the surge in prices seen during the invasion of Ukraine by significantly increasing profit margins during that period.
This week marked the start of the third quarter of the year. So far, company earnings have proved much more resilient than many analysts had predicted, and this has supported equity markets in the first half of 2023. With Q2 earnings season starting in a few weeks’ time, investors will be keen to see if this trend has continued or if there are any early signs of a slowdown in consumer spending.
John Naylor, Chartered FCSI – Head of Investment Committee