Market Update – 14th August 2024.

14th August 2024

This morning, UK inflation came in for July at 2.2%, just above the Bank of England’s 2% target. The Office for National Statistics put the increase down to household service costs, as energy and fuel prices have not declined by as much as they did a year earlier. Core inflation, excluding volatile elements, came in at 3.3% for July down from 3.5% in June, while the much-watched services inflation rose by 5.2%, down from 5.7% in June. The data will perhaps be received by policymakers as evidence that they were right to initiate a rate cut at their August meeting, with the slower price growth and modest increases in the headline rate illustrating that inflation is responding to policy accordingly.

The data follows reports from the Office for National Statistics on Tuesday showing that UK wage growth has decelerated to its slowest pace in two years. Excluding bonuses, wages in the three months to June were 5.4% higher than a year earlier, down from the 5.8% increase recorded in the three months to May. Meanwhile, the UK’s unemployment rate saw a slight decrease, falling from 4.4% in the second quarter to 4.3% in the three months to June. While the latest wage data in particular is unlikely to cause much of a headache for the Bank of England, as it runs adjacent to modest inflationary figures, the growth remains more than double the central bank’s 2% inflation target and will be something the Bank eyes when considering any further cuts this year.

The US Producer Price Index (PPI) for July registered a slight 0.1% increase, falling short of the anticipated 0.2%, according to data released on Tuesday. In contrast, core PPI, which excludes volatile food and energy prices, rose by 0.3%, exceeding forecasts. Notably, a closer examination of the data revealed that July’s inflation was driven primarily by a 0.6% surge in goods prices—the largest since February—while services lagged behind. Despite this unexpected rise in goods prices, which have returned to pre-pandemic levels, markets remained steady, continuing to anticipate a potential interest rate cut from the Federal Reserve later this year.

On Wednesday, Prime Minister, Kishida, of Japan announced that he would not be running as party leader in the Liberal Democratic Party election next month. Kishida suggested that a fresh face was needed for the public to begin to trust the party again. With no clear successor yet, the move generates some uncertainty for markets, although its impact is thought to be minimal. Following a local news outlet breaking the story, the Nikkei closed up over 1%.

On Monday, OPEC revised down its global oil demand growth forecast, citing weaker demand from China. In its monthly report, the organisation projected that world oil demand will rise by 2.11 million barrels per day in 2024, a decrease from the 2.25 million barrels per day it forecasted last month. Despite this, OPEC remains optimistic that China’s overall demand for oil in 2024 will surpass the levels seen so far this year. Meanwhile, OPEC+ partners outlined plans to roll back production cuts of 2.2 million barrels per day starting in October, but these plans may need to be reconsidered if China’s demand fails to rebound and the global demand forecasted proves overly optimistic.

Still to come this week we have the US’ inflation rate, Japan’s GDP, UK GDP and US and UK retail sales.

Nicola Tune, Portfolio Specialist