Astute Market Overview - 1st August 2023
Welcome back to the Astute Market Overview, providing you with a regular update of all things market related.
Last week was a strong week for some key markets, particularly Europe and China.
China saw a rally that ran into this week, following a report from the National Development and Reform Commission, promising measures to resume and expand consumption. In last week’s update, we mentioned that the Politburo was reportedly promising support for the economy – this release only bolsters that argument, and markets were very receptive.
Over the week we had interest rate increases from the European Central Bank (or ECB) and Federal Reserve, both increasing their key rates by 0.25%. These hikes take the Federal Reserve’s Federal Funds Rate to the highest in 22 years, and the ECB’s deposit facility rate to the highest, well, ever, matching the rate in 2000.
Turning to some recent standout earnings report news – energy and services company Centrica reveal profit for the first half of the year, of £2.1billion. The company reported profits from one of its component parts, a household name: British Gas, of £969 million, which is an increase of 889%! This is almost 10 times £98million, which is the profit from the first half of 2022 (although we can certainly see why headlines went with 889%, it has a bit more power behind it!).
These profits come at a time when consumers are feeling the pinch, having been exposed to high energy prices for over a year, given high wholesale prices, and energy price cap increases.
Ofgem has previously set the scene for energy supplier profits, as the price of wholesale energy has drifted down from 2022 highs, allowing the company to recoup losses made in recent years.
To round off the week, the Bank of Japan made a tweak to their yield curve control. Whilst the technical details aren’t appropriate for this update, the central bank is aiming to make small amendments to assess how the market reacts.
Japan is an economy that has previously struggled with low inflation (and deflation), stagnating wages, and has held it’s interest rate below 1% for the whole of this decade.
Inflation is now rising above targets in the region, and investors watch closely for signs of a slow normalisation of monetary policy to reveal Japan’s potential.
We’ll take a break from the Astute Market Overview next week, but over the period we’ll be watching out for an interest rate decision from the Bank of England Monetary Policy Committee and the Bank of Japan, and US jobs data.
See you next time.