Market Update – 17th August 2022.

18th August 2022

Whilst some financial markets were closed on Monday for Assumption Day, it has been a strong start to the week for many.

It’s a big week in the quarterly reporting season for consumer-focused companies. Both Walmart and Home Depot beat earnings expectations, with Walmart shares rising by 6% yesterday. The world’s largest retailer painted a more positive outlook on consumer spending than it offered last month. Results from these large US retailers are observed as an indication that the US economy is remaining resilient.

On Monday, the People’s Bank of China unexpectedly cut its medium-term lending rate by ten basis points to 2.75%. The move surprised investors and came after the government released disappointing economic data. Growth in factory output and retail sales came in below expectations for July. It’s important to remember that data is backwards-looking, the central banks are accommodative and are keen to revive credit demand as the economy continues its shaky post-lockdown recovery. Policymakers still show no sign of easing the zero-Covid policy.

Later today the US Federal Open Market Committee will release the minutes from their meeting in July where they raised rates by 75 basis points. Investors will be looking for clues regarding the policy outlook for their next meeting in September, however Chair Jerome Powell has suggested guidance for upcoming policy decisions would be “less clear” than the last few versions.

We’ve had plenty of data releases in the UK this week; unemployment remains close to a 50-year low at 3.8%. Additionally, whilst there are still staff shortages, job vacancies fell in the UK – a sign that the tight labour market might be starting to loosen.

And finally, UK CPI (the preferred measure of inflation) for July was released this morning at 10.1%, hitting double digits. Inflation is still expected to fall towards target during 2023 as the Bank of England continues to raise interest rates and many of the pressures behind inflation are likely to ease.

Towards the end of the week, we have UK & US retail sales figures which will provide additional updates on the labour market recovery and price pressures, offering further clues on the size of central bank rate hikes in September.

Kate Mimnagh, Portfolio Economist.