This week we have seen markets trying to get ahead of the US Federal Reserve once again. For most of this year government bonds have sold off as investors anticipated aggressive rate hikes from the US Fed and other central banks. With economic data deteriorating, bond markets are now trying to time the moment when the Fed pauses, or even reverses, it’s rate hikes. The minutes from the latest Fed interest rate meeting show it moving towards a less aggressive path for rate rises, while indicators show economic activity slowing and unemployment beginning to rise.

However, the outlook for interest rates, and the knock-on effect on bonds values, remains balanced and investors calling the top of the interest rate hiking cycle have the potential to be disappointed. Sticky inflation or stronger than expected economic data could persuade the Fed that it needs to remain aggressive for longer. The ECB and Bank of England have been talking up the need to continue tightening and central banks in Sweden, New Zealand and South Africa all increased rates by 0.75% this week as they remain committed to getting inflation under control. 

For the following stories, please click on this link*

• UK – Gloomy outlook worse than other developed countries
• Oil – Fears of a global slowdown weigh on prices
• Bonds – Government debt rises as markets look to Fed slow down

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week we saw the chancellor playing for time. Tax rises and spending cuts were well briefed to the media and markets have so far taken Jeremy Hunt’s announcements in their stride. The chancellor’s reforms also managed to keep the Conservative backbenches mostly onside as Hunt appears to have pulled off the trick of sounding serious without actually doing very much, as the biggest spending cuts have been deferred.

Political commentators have been keen to point out that delaying spending cuts sets a trap for the next government. However, Hunt is likely to have learned Kwasi Kwarteng’s painful lesson: borrowing a lot of money when interest rates are high is expensive and makes you unpopular. The Office for Budget Responsibility predicts inflation will turn negative in 2024 and the UK is entering a protracted recession. Hunt may be betting that the Bank of England will have to cut rates and restart QE to revive the economy. This would revive the option of tapping the gilt market to pay for government spending, just in time for the next election. And if it doesn’t work, well that will be someone else’s problem to deal with.

For the following stories, please click on this link*

• UK – Chancellor reveals austerity part 2 as inflation accelerates
• Currencies – Dollar falls as outlook for US rates moderates
• Equities: Value retailers benefit from shoppers trading down

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week the first official signs that inflation may be peaking sparked euphoria in markets. The latest CPI report from the US came in below analyst forecasts, a welcome relief from months of prices rising faster than expected. US stocks had one of their best days on record making nearly 6%. Other equity and bond markets around the world also rallied. Markets are now betting that the Federal Reserve won’t need to tighten interest rates as much and thus the chances of avoiding a recession are improved.

While we don’t want to rain on anyone’s parade it might be just a bit too early to be celebrating. Easing of supply chain disruption caused by Covid is now largely complete and so its impact on inflation is dissipating, while the war in Ukraine and subsequent energy crisis, the other main driver of inflation, is ongoing. We’d point out that inflation of 7.7% is a long way from the central bank’s target of 2%, despite being a lot better than the 8% predicted. While this week’s celebrations might be overdone, we are still positive that things finally appear to headed in the right direction.

For the following stories, please click on this link*

• USA – Inflation matters to markets more than the mid-terms
• China – Outlook deteriorates as markets gamble on Covid easing
• Crypto: Broad sell off as key exchange heads for Bankruptcy

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

This week the Bank of England and the US Federal Reserve joined the European Central Bank to complete a triumvirate of 0.75% interest rate hikes. The tone taken by the US and UK banks was noticeably different. US Fed chair Jerome Powell was keen to point out that financial markets’ expectations for interest rate are too optimistic. Positive employment figures in the US points to the job market remaining robust and so Powell was keen to emphasis that further hikes are likely to be necessary. The Fed is not for turning, or at least not yet.

In the UK, governor Andrew Bailey was a bit more conciliatory towards markets and said inflation is now expected to peak at 11% this year as he suggested that the hikes already in place may be enough to bring inflation below the 2% target in two years. The bank’s more pessimistic forecast sees inflation peak next year with more aggressive tightening required. In both scenarios the bank now predicts a prolonged period of recession but, with economic data continuing to deteriorate, this doesn’t need much crystal ball gazing at Threadneedle Street.

For the following stories, please click on this link*

• Interest Rates – US & UK central banks continue to hike aggressively
• Global – Further signs of a widespread economic slowdown
• Equities: Property under pressure from rising rates

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)