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Astute Market Overview - 26th July 2023


Welcome to the Astute Market Overview of the last week, which saw a boost for UK markets.

We had some key inflation releases last week. UK Consumer Prices Index (CPI) inflation came in at 7.9% for June down from 8.7% for May, with the core measure 6.9% vs 7.1% in May. As wholesale energy prices fall from 2022 highs, the energy price cap has also been dropping, and in July of this year it was dropped to a level that now sits beneath the Energy Price Guarantee. This means that energy price now has a lower ceiling, resulting in a real drop in energy bills. This will be a relief for the next inflation reading covering July, and we expect that the headline figure will continue to fall.

CPI inflation also continued to cool in the eurozone, coming in at 5.5%, which will be welcome news for European Central Bank policymakers who will gather in Frankfurt this week. Despite falling inflation, it is looking likely that another interest rate increase may be in store.

Turning to China, we had the release of disappointing GDP and retail sales data.

Let’s set the scene: in most societies, coronavirus is a concern of the past; the times when we lived between lockdowns, and the virus appeared as an uncontrolled threat are firmly behind us. When we emerged from lockdowns in the UK, it was a gradual process, with restrictions easing (and advice changing) at different times depending on which country (and even county) you were in. This was not the case for China. China implemented a zero tolerance, zero-covid policy, resulting in spells of strict lockdowns, which caused compressions in the market.

The policy abruptly ended in January of this year, with many economists expecting a boost to both the economy and the markets, given that many consumers and workers (who were kept at home, building up savings and not able to spend or work) were now let loose back out into the economy to spend and provide labour.

However, China’s recovery hasn’t lived up to its expectations. Q2 GDP growth was not as high as economists had forecast, coming in at 6.3% for Q2 year on year, and up 0.8% when comparing quarter on quarter growth. Furthermore, Chinese retail sales growth slumped to 3.1% in June (YoY), vs. 12.7% in May.

However, this doesn’t paint the full picture regarding the outlook for investment in China: in response to the disappointing releases, the Politburo is reportedly promising support for the economy. The supportive tone reveals the appetite of the Chinese government to provide necessary policy amendments, and potentially stimulus if necessary.

Coming up this week, we’ll be watching out for an interest rate decision from the Federal Reserve on Wednesday, from the ECB on Thursday, and from Japan on Thursday.

See you next time.

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