It was a generally positive week for equity markets. Investment sentiment was dominated by the possible implications of inflation proving stickier than expected across the globe.
With hopes that interest rates were close to peaking in most developed markets, there was surprise this week when both the Bank of Canada and Reserve Bank of Australia unexpectedly raised interest rates, signalling that further increases may be required in other countries.
All eyes are now on the US Federal Reserve (Fed), which meets next week to decide interest rates. Having raised rates at every meeting since March last year, many economists expect the Fed to pause in June. This would give them the opportunity to monitor data during the month and review if further interest rates hikes are deemed necessary to bring inflation back towards target.
There was a muted reaction to the news on Sunday that OPEC+ (Organisation of the Petroleum Exporting Countries) members decided to extend their crude oil production cuts through 2024 in an effort to support falling prices. Having peaked last March at over $125 a barrel, brent crude now trades around the $75 a barrel level. Saudi Arabia also announced that it planned to voluntarily reduce its current production level of 10 million barrels per day, to around 9 million per day in July.
Oil prices have drifted lower in recent months, largely on concerns around the health of the global economy, which will drive demand in the period ahead. Motorists are certainly welcoming the fall in oil price, with the price at the pump finally coming down and now sitting roughly 30% lower than the peak last year.
John Naylor, Chartered FCSI – Head of Investment Committee