Welcome to the Astute Market Overview of the last week.

It was a shortened trading week for the US, as markets closed to celebrate Independence Day, the Fourth of July holiday that fell on Tuesday.

The US abruptly snapped out of holiday mode on Wednesday, with the release of the minutes from the last Federal Reserve (Fed) Open Market Committee meeting. In the current high inflation/increasing rates environment, these minutes are always examined for hints or signals that the Fed leave for the markets to interpret. So what did the minutes show this time? The meeting from which the minutes were taken saw the Fed hold interest rates steady, giving them time to gauge the impact of their previous interest rate hikes. Delving into the minutes, the participants of the meeting agreed that they all remain highly attentive to inflation risks, and would expect to see a “period of below-trend growth in real-GDP and some softening in labor market conditions” to help to reduce inflationary pressures. This is where the Fed is torn between the aim of achieving maximum employment, and the need for the labour market to cool to bring down inflation.

Whilst the committee were clear that there remains a high degree of uncertainty surrounding the effects of the current monetary policy tightening, the broad consensus was that further increases would be appropriate this year.

Last week, the Fed also released their latest observation for the prime age participation rate – the percentage of those between 25-54 who are employed or actively seeking work. The rate increased to 83.5%, the highest in over 20 years.

At the end of the week, US jobs data revealed that 209,000 non-farm jobs had been added, which is a slight slowdown vs 278,000 jobs, which is the average per month over the first 6 months of 2023. The unemployment rate slipped slightly, to 3.6%, however it was noted that the unemployment rate has increased from 3.4% in March 2022.

Overall, the data reflects a slowdown in the labour market, but analysts and economists aren’t convinced that it is enough to persuade the Federal Reserve to hold interest rates steady again at their next meeting (25-26th July).

Whilst inflation is coming down, average hourly earnings remain at 4.4% for June YoY. We will have the next release of US CPI inflation this week, and (unless inflation climbs back up materially) we will likely see above inflation pay increases continuing to be secured. Of course, for workers this is great news – as inflation reduces their spending power, the increase in salary begins to tip the scales back in their favour. However, from the perspective of bringing down inflation, there will be fears that the increased spending power will only feed into inflation in the US.

Coming up this week, we have China CPI and UK average earnings to digest, minutes from the last Bank of England financial policy committee meeting, US CPI and UK GDP.

See you next time.