Market Update – 17th July 2024.

17th July 2024

This morning, UK inflation came in for the month of June unchanged. Core inflation, which excludes volatile prices of food, energy and alcohol also remained the same at 3.5%. According to the Office for National Statistics, retailers slashing prices to clear their summer stock were offset by higher costs of hotel prices.

The Bank of England’s meeting to decide interest rates on the 1st of August remains in high focus. While headline and core inflation has moderated, services inflation buoyed by robust wage growth remains sticky, providing complication for policymakers who are largely expected by the market to make a rate cut their next move. Economists maintain, however, that inflationary figures are showing signs of normalisation and easing of monetary tightening is therefore needed to not allow growth to stagnate.

On Monday, a host of data releases emerged in relation to the Chinese economy. In Q2, the world’s second-largest economy grew by 4.7%, very narrowly missing expectations of 5.1% growth. The region’s landscape exhibits some disparities particularly between its industrial output and domestic demand. Industrial growth has been robust, with the latest figures showing that production increased 5.3% in June from the previous year. However, consumers have been choosing to hold onto their savings, with retail sales growing 2% in June in contrast to 3.7% in May.

Markets were moved slightly by the data, with the blue-chip CSI 300 Index and Shanghai Composite Index up marginally higher by the midday pause in trading. Alongside China’s GDP growth of 5.3% in Q1, the latest GDP growth does not diminish the chance the region has of hitting their growth target of ‘around 5%’ in 2024. Investors will be keen to hear the outcome of the Third Plenum. Policymakers will conclude the meeting that will further consolidate the direction of supportive policy on Thursday.

Also on Monday, Fed Chair, Jerome Powell, made some dovish comments at a Q&A at the Economic Club in Washington. He noted that policymakers are becoming more convinced that inflation is cooling towards its 2% target, citing the three ‘better’ readings they have recently had that average out to a ‘good pace’. However, he kept cards close to his chest by adding that he would not send signals regarding a rate cut at any particular meeting.

Powell’s statements were shortly followed by data on US retail sales which were unchanged in June, beating expectations but showing that the US consumer is perhaps starting to pull back and spend more strategically as tight monetary policy takes a toll on their wallets. While sales in May were revised higher to 0.3%, dampening anxiety of a significant slowdown in the region, the rate cut that the market has priced in for September will perhaps come at a welcoming time for American citizens.

Still to come this week we have Eurozone CPI and their interest rate decision, US initial jobless claims, Japan’s CPI and UK retail sales.

Nicola Tune, Portfolio Specialist