MARKET UPDATE: INFLATION, EMPLOYMENT AND RETAIL SALES DATA

MARKET UPDATE: INFLATION, EMPLOYMENT AND RETAIL SALES DATA TO PAVE WAY FOR UK RATE HIKE?

LAST WEEK – KEY TAKE AWAYS

Trump flies into the UK as May warns MPs not to put Brexit at risk

  • US president met with Theresa May to talk about Brexit, while also calling the EU a “foe” on trade.
  • A white paper published on Thursday outlined the UK government’s plans, advocating close links with the EU on trade in goods, but not in services.
  • Writing in the Mail on Sunday, May urged MPs to “keep their eye on the prize” ahead of a crucial Commons vote on trade and customs policy.
  • The Omnis view: Trump causes furore whether he goes, suggesting that European countries were taking advantage of the US and not paying their Nato bills. The prime minister, meanwhile, has a busy time ahead warding off any possible leadership challenge.

UK GDP growth rises to 0.3% in May

  • The UK economy strengthened in May, with growth of 0.3% from 0.2% in April, following a winter slowdown.
  • Growth was led by a strong services sector, including retail, computer programming and legal services.
  • The Office for National Statistics also calculated that gross domestic product (GDP) only rose by 0.2% in the March-to-May quarter, matching the growth of the first three months of the year.
  • The Omnis view: this was the ONS’ first monthly estimate of GDP, which presents a mixed picture of the UK economy. We expect continued slow, but steady, growth in the months ahead.

Mixed results for banks as US earnings season kicks off

  • JPMorgan and Citigroup both beat expectations for second-quarter profits on Friday, a big day for US bank results.
  • Wells Fargo saw second-quarter profits fall by 11%, in part caused by previous regulatory issues.
  • Global banks have recently been subject to Federal Reserve stress tests, designed to assess how well they could withstand another financial crisis – Deutsche Bank’s US division notably failed.
  • The Omnis view: the health of the banking sector is important as this sector makes up a big part of stockmarkets in the US and in the UK.

US inflation up 2.9% over 12 months

  • The Consumer Price Index (CPI) came in at 0.1% for the month of June, with the annual figure coming in at 2.9%, which is the highest since December 2011.
  • Excluding the volatile food and energy sectors, core CPI rose 0.2% for the month. Annually, this core figure is 2.3%.
  • The Federal Reserve is forecasting that its favourite measure of inflation, the Personal Consumption Expenditure Price Index, will remain at 2.1% this year.
  • The Omnis view: the Federal Reserve said on Friday that it expects rising inflation and low unemployment will keep it on track to raise interest rates at a gradual pace over the next two years. Two more hikes are projected in 2018.

Chinese economy growing at slowest pace since 2016

  • The second-quarter growth rate for China was 6.7% year-on-year, slowing from 6.8% for Q1.
  • The current pace of growth still remains above the government’s annual growth target of 6.5%.
  • Asian stocks were mostly trading lower on Monday in reaction to the data.
  • The Omnis view: it is clear China is slowing, though 6.7% growth is still the envy of other nations. The impact of trade disputes with the US will likely be felt in the second-half of this year.

Looking ahead – TALKING POINTS

Inflation, employment and retail sales to shed light on UK economy

  • Inflation remained steady at 2.4% in May, despite a rise in oil prices. Forecasters expect the Consumer Price Index to rise to 2.6% for June.
  • Wages will be in the spotlight ahead of the Bank of England’s Monetary Policy Committee meeting on 2 August.
  • Following two consecutive months of strong retail sales growth, there could be further good news for the UK’s embattled high street.
  • The Omnis view: the Bank of England’s Monetary Policy Committee is expected to raise the base interest rate from 0.5% to 0.75% in August, though poor data this week could put that move in doubt.

UK inflation rate (%) – June 2017 to May 2018

uk-inflation-july_499x205_jpg

Source: Office for National Statistics, tradingeconomics.com

Powell testimony will give clues to future US monetary policy

  • Federal Reserve chair Jay Powell is set to deliver his semi-annual testimony on the US economy and monetary policy to a Senate committee on Tuesday morning.
  • This should support expectations of a 25bp rate hike at the Federal Open Market Committee’s September meeting.
  • The median estimate of projections put rates at 3.1% at the end of 2019, and 3.4% at the end of 2020.
  • The Omnis view: The market still expects Powell to raise rates much slower than he has indicated. Any hints at this in his testimony will be taken positively.

US Fed Funds Rate –  2013 to 2018

us-fed-funds-rate_500x205_jpg

Source: Federal Reserve, tradingeconomics.com

 The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address:  Washington House, Lydiard Fields, Swindon, SN5 8UB) which is authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and Key Investor Information Documents (KIIDs).

Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).

 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *