Market Update

We begin by expressing our deep sadness at the passing of Her Majesty, Queen Elizabeth II. Our thoughts are with the Royal Family during this time. Queen Elizabeth was a constant and inspiring figure during various economic and market challenges, and her legacy is cherished.
In her new role, Liz Truss wasted no time in announcing plans to cap household energy bills, aiming to alleviate the cost-of-living crisis and prevent a recession. As a result, shares in companies affected by belt-tightening, such as retailers and those in the hospitality sector, saw gains during the week.
While the headline cost of this policy garnered attention, we believe the actual cost to the government will be considerably lower. The government anticipates that these measures could reduce inflation by up to 5%, resulting in substantial savings through reduced index-linked debt costs and welfare payments.
Furthermore, this policy is likely to limit increases in inflation-linked household bills, like mobile phone and internet contracts. A lower inflation rate may also persuade Bank of England policymakers that there's no urgent need for an aggressive interest rate hike in the UK.
In other developments, the European Central Bank (ECB) followed the trend of significant interest rate hikes, raising Eurozone interest rates by 0.75% to 0.75%. Policymakers signaled further rate increases to combat inflation. The ECB also revised its growth and inflation forecasts, projecting an end-of-year inflation rate of 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. Surprisingly, despite the rate hike and rising gas prices, the ECB increased its economic growth estimate for 2022 to 3.1% from 2.8%, highlighting a disconnect between central bank policymakers and the real world.
Fortunately, as shown in the accompanying table, these events did not prevent global equity markets from ending the week on a positive note.
Looking ahead to the coming week, the UK will observe 10 days of national mourning, delaying government announcements from Liz Truss and Kwasi Kwarteng's plans for the nation's finances. Despite this, economic data releases in the UK will proceed as usual, including highlights like July's GDP, industrial production, employment data, CPI inflation, and retail sales. The Bank of England has rescheduled its monetary policy meeting to September 22, 2022.
The most critical data release for global financial markets in the upcoming week will be Tuesday's (September 13, 2022) US CPI inflation report. Fed policymakers will not be able to comment, as they will be in a blackout period leading up to their monetary policy meeting the following week on September 21, 2022. Additionally, the US will release retail sales data, the Empire State Manufacturing Survey, and the University of Michigan Consumer Sentiment Index.