Welcome to the latest Astute Market Overview, our opportunity to discuss interesting events over the last week that may have impacted markets, we hope you find this insightful.

As the leaders from G7 member states met in Hiroshima last week, we had the release of Japan CPI inflation.

The CPI figure excluding food and energy (which is a key measure for inflation in Japan) came in at 4.1%, the largest annual increase in prices for the region since 1981.

Given that the Bank of Japan has struggled with low inflation and stagnating wages for many years, the central bank has been aiming to sustainably increase inflation upwards towards their 2% target. However not only is April’s reading above targets, but household electricity prices are due to increase in June, adding upwards pressure to inflation.

Whilst markets watch on to see if the data will lead to a normalisation to Japan’s monetary policy (the key interest rate has been below 1% for the whole of the 21st century), the newly appointed Governor of the Bank of Japan, Kazuo Ueda, isn’t making any hasty decisions – saying it is appropriate to take time before adjusting their monetary policy stance. The central bank are likely to want to see rising prices translate to rising wages.

We discussed the debt ceiling at length in last week’s Astute Market Overview. The S&P 500 jumped in the week as signs emerged that the debt ceiling could be renewed, and default avoided.

Over the weekend, whilst no resolution was agreed, the tone of both president Biden and Republican House speaker Kevin McCarthy switched to optimistic. Both politicians are confident that an agreement will be reached to avoid a default.

Elsewhere, market research company GfK’s UK household confidence index increased by 3 points to -27. The reading is at the highest level since Russia invaded Ukraine in February 2022 causing energy prices to spike, highlighting that UK consumers are becoming more positive about their finances and the economy despite high levels of inflation. As mentioned last week, the Bank of England’s economic outlook has also brightened, as they no longer forecast a recession.

Turning to this week, we have the release of UK CPI; given that this reading will include April 2022’s price cap increase as the base cost for energy, we are anticipating a drop in the headline figure and our focus will be on the detail to ascertain the areas in which inflation remains sticky.