Weekly Market Update- Week Ending 19/08/2022

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On Wednesday, the Office for National Statistics (ONS) announced that Consumer Price Inflation (CPI) rose by 10.1% in July 2022, up from 9.4% in June. The latest increase in the CPI rate was driven by energy and fuel prices, as well as food prices which rose by a 20-year high rate of 12.7%. The ONS also announced the latest UK wage growth figures, for the period March to May 2022. Despite regular pay growing by 4.3%, the mainstream media understandably concentrated on a record fall in the inflation-adjusted rate, with this falling by 2.8%.

In the United States, Joe Biden signed off the Democrats’ Inflation Reduction bill, finalising more than a year of negotiations. The law directs $369bn toward investing in renewable energy and reducing emissions, which some experts say could reduce US emissions by about 40% by 2030, compared with 2005 levels. The act also covers healthcare provisions, including allowing centralised negotiation of certain expensive drugs, as well as a series of tax changes which are expected to bring in hundreds of billions of dollars of revenue for the US government.

The release of minutes from the latest Federal Reserve meeting provided very little cheer for markets, with no signs of a change in policy stance and hoped for ‘fed pivot’ which is likely to restart a push for risk assets. With the Fed now pursuing a data dependant policy, much would seem to rely on a further softening of inflationary pressures, with other economic data providing a mixed picture at present. Markets are currently pricing in a near-60% chance of a further 50-basis point rate hike in September.

The main surprise for investors came at the start of the week as the People’s Bank of China unexpectedly lowered two key lending rates, in light of an increasingly shaky economic recovery. The country’s zero-COVID policy continues to dampen economic activity, with sudden lockdowns enforced by health officials, such as the chaotic scenes reported at an Ikea in Shanghai at the weekend, hardly likely to encourage their population to get out and spend!

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Stephen Willerton, Chartered FCSI – Investment Manager / Associate Director
Stephen Willerton