Market Update – 28th June 2023.

28th June 2023

Even as the economy softens, the European Central Bank (ECB) have not yet declared victory in their battle with inflation that remains ‘too high’, it was revealed on Tuesday at the ECB Forum on Central Banking. ECB policymakers spoke on their thoughts about the region’s recent economic growth in the media this week, noting that they expected slowing, or even a form of stagnation, to have taken place by now – neither of which has materialised. For them, and other analysts keen to see how inflation plays out in relation to market sentiment, although inflationary figures are coming down due to rate rises and cheaper energy prices, a ninth consecutive rate hike is nearly confirmed for July. The ECB raised interest rates to their highest level in 22 years earlier this month and unless they are able to get a grip on rising prices soon, it is forecast to stay above its 2% target in 2025.

The most recent economic data on the health of the region has shone a light on issues within the eurozone and in particular, its second largest economy, Germany, who is beginning to feel the consequences of higher borrowing costs and China’s slower than hoped for economic performance. Although China’s story could be changing soon – at least if Chinese Premier Li Qiang is to be believed, anyway. On Tuesday, Li Qiang addressed a World Economic Forum summit to state that China will introduce measures to boost demand, invigorate markets, promote development while accelerating the green transition and opening “high level” parts of its economy to the outside world. And what exactly are those measures? Well, we’re not too sure yet, as he kept them under wraps for now. However, with a promise that China’s economic growth in the second quarter will be higher than the first and is expected to reach the annual economic growth target of around 5%, it can only be imagined that any worries investors have on lagging growth will be quelled.

In May, there were surprising increases in new orders for US durable goods. New orders increased 1.7% month over month in May 2023, well above market estimates of a 1% fall. Additionally, US consumer confidence reached a nearly one-and-a-half-year high in June. Although there has been recent market weakness, the main indices are poised for quarterly gains due to a rally in growth stocks, positive earnings reports, and the anticipation of the Federal Reserve winding down its monetary tightening measures in the near future.

More economic data is due this week, including Chinese PMI, Eurozone inflation & unemployment data. On Friday we have the Fed’s preferred measure of inflation, PCE.

Nicola Tune, Portfolio Specialist