Weekly round up
UK markets made moderate gains this week with the FTSE 100 Index rising by 0.25% to trade at 7,545 points at the time of writing.
Economic data showed the UK’s rate of inflation jumped to 10.1% in July, the first double-digit annual increase in more than four decades exceeding economists’ expectations that the rate would edge up to 9.8%. Consumer price inflation, driven by higher food prices, rose from 9.4% in June to its highest level since February 1982, intensifying the squeeze on household incomes.
Monthly research from data provider GfK showed UK consumer confidence has fallen to its lowest level in August since comparable records began almost 50 years ago as the rising cost of living has raised concerns over personal finances and economic prospects.
UK retail sales unexpectedly rose 0.3% over the previous month in July 2022, recovering from declines in the last three months and beating market forecasts of a 0.2% fall. Sales were boosted by online promotions, with online sales rising 4.8% in July, but the trend of spending in shops was still falling.
The British pound fell to a 4-week low of 1.18 USD on Friday, after policy minutes from the US Federal Reserve boosted the US currency to a level not seen in a month. At the same time, markets were worried that surging domestic inflation would result in higher UK interest rates and a weaker British economy.
In the commodity markets, Brent crude futures traded around $95 per barrel on Friday and are set to end the week lower, as concerns about a global economic slowdown and potential supply boosts from major producers outweighed signs of stronger fuel demand. Recession fears continued to grip commodity markets, with the US Federal Reserve intent on raising interest rates further to bring inflation substantially lower. Investors are closely monitoring efforts to revive the 2015 nuclear deal that could boost Iranian oil exports by around 2.5 million barrels per day. The Biden administration says it’s ready to sign a deal quickly if Iran accepts it.
Gold prices weakened to a three-week low of $1,753 an ounce on Friday, weighed down by The US Federal Reserve’s commitment to keep rising interest rates. Credit Suisse recently joined Goldman Sachs in slashing price targets for gold, citing pressure from rising real rates and the Federal Reserve’s resolve in bringing down inflation.
US equity futures fell on Friday as the Wall Street rally that started in mid-July has started to show signs of cooling. The three major US averages are set to end the week in a mixed state, with the yield on the 1-year US Treasury note rising above 2.9%, a level not seen in a month, as investors reassessed the outlook for monetary policy following hawkish remarks from several US Federal Reserve policymakers. The S&P 500 and the Dow Jones Industrial Average remain in positive territory, whilst the tech-heavy, Nasdaq Composite is set to break a four-week advance.
The number of Americans filing new claims for unemployment benefits fell last week, suggesting labour market conditions remain tight, despite a slowdown in momentum due to higher interest rates. The claims report, the timeliest data on the US economy’s health, could give the Federal Reserve more ammunition to deliver another 0.75% interest rate hike next month. Home sales in the US declined 5.9% to a seasonally adjusted annual rate of 4.81 million in July of 2022, the lowest since May of 2020 and below expectations of 4.89 million. Sales have declined for a six consecutive month, reflecting the impact of the US mortgage rate peak of 6% in early June.
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