Market Update

This week emphasized that central banks aren't done grappling with inflation.
Last week, the Federal Reserve hit pause on interest rate hikes, opting to evaluate the aftermath of their recent actions. Yet, during his addresses on Wednesday and Thursday, Fed Chair Jay Powell conceded that the struggle with escalating costs continues. He acknowledged that inflation remains above the desired benchmark and highlighted the notable distance from the 2% target, hinting at more rate adjustments on the horizon, contingent on economic data.
Inflation in the UK remains notably persistent. Critics attribute this to the Bank of England (BoE)’s sluggish initiation of rate hikes and the ramifications of Brexit, which elevated import expenses. Surging CPI data this week prompted the BoE to amplify their rate increase to 50 basis points, instead of the anticipated 25. This adjustment marked the 13th successive hike since December 2021, elevating rates to a peak not seen since 2008, at 5%.
This rate elevation will intensify the burden on borrowers, notably impacting around 1.4 million households set to re-mortgage in the forthcoming half-year. Many who secured mortgages at historically low rates now face ascending costs, potentially trimming their available spending money. Prime Minister Rishi Sunak has reportedly positioned inflation as a top agenda item, vowing to curtail it to roughly 5% this year.
Even with the prevailing living costs dilemma, the UK's economic vigour is evident. Contrary to expectations, UK retail sales ascended by 0.3% in May, following April's 0.5% surge, outpacing the anticipated 0.2% dip. The Office for National Statistics attributed this uptick to favorable weather.
We've consistently advised caution, emphasizing that policymakers should be wary of inducing a recession. However, it remains to be seen when elevated rates will begin to tangibly influence enterprises and the public.
On the geopolitical front, ties between the US and India solidified as Indian Prime Minister Modi toured Washington. Discussions spanned bolstering defense relations, tech collaborations, and India's evolving role in the Indo-Pacific.
With trade figures touching $130 billion, the US now ranks as India’s prime trade ally, with India holding the position of Washington's eighth-largest trade partner. Although these stats are noteworthy, experts believe there's substantial room for growth. Modi is keenly promoting India as a viable substitute to China, aiming to transform it into a global manufacturing nexus and a semiconductor stronghold.