Market Update

From the accompanying table, it's evident that markets climbed this week, even in the face of central bankers' slightly hawkish remarks. ECB Chief Christine Lagarde, together with US Fed Chair Jay Powell and the Bank of England's Andrew Bailey, highlighted inflationary concerns. At the annual policy symposium in Sintra, Portugal, the consensus was clear: interest rates will rise and remain elevated for the required duration.
Speaking at the European Banking Forum, Jay Powell articulated his view that the projected 2% inflation target might not be met this year or the next. He hinted at continued rate increments, possibly even a hike towards July's end, with a pause in August. Despite the challenges, the US economy has showcased remarkable strength, suggesting it might weather a 25-basis point increase at the upcoming Federal Open Market Committee gathering. Stocks saw an uptick on Friday, propelled by May's moderate US inflation and steady consumer expenditure, hinting at potential deceleration. The personal consumption expenditure price index rose by 3.8% YoY in May 2023, marking its smallest increment since April 2021, relative to April's revised 4.3% gain. Given the cooling inflation signs, the Fed must exercise caution to avoid overextending rate adjustments.
In the Eurozone, June's annual inflation rate settled at 5.5%, receding from May's 6.1%. Despite a sharp drop in energy costs from last year, the core inflation, which excludes fluctuating food and energy prices, slightly rose to 5.4% MoM, shedding light on enduring price stressors. Meanwhile, employment trends remain positive, with unemployment figures continuing their decline, suggesting a tight job market.
Although inflation has come down significantly from its 10.6% peak in October, the consistent price elevation implies the ECB's job isn't over.
The differential in inflation rates between the UK and the Eurozone this week can be attributed to unique factors like Brexit and the UK's energy pricing policy. The UK grappled with heightened inflation due to the energy pricing crisis and labor shortages post-Brexit. Conversely, the Eurozone, without similar energy price caps, mirrored the recent downturn in global wholesale prices.
The coming week will be shortened, with US markets closed on Tuesday for Independence Day. We're anticipating the release of the US Job Openings and Labor Turnover Survey (JOLTS). Attention will also be directed towards PMI data from the UK, US, and China, in addition to the US trade balance and Eurozone's retail sales.