Week ending 3rd June 2022.

As you can see from the accompanying table, with long weekends in both the US and UK, it was a bit of a nothing week.

The main theme of the week was again inflation.

Despite news that OPEC, (Organization of the Petroleum Exporting Countries), would increase output by nearly 650,000 barrels a day (up from an initial plan of 400,000), the price of a barrel of oil continued to rise after the EU announced plans to ban seaborne imports of Russian oil, coupled with news that China was easing its coronavirus lockdowns.

As we have previously explained, higher energy prices have been the biggest contributor to the current inflationary pressures – and therefore ideally we would like to see a weaker oil price.  Furthermore, this week’s oil price increase again makes us question how effective central bank tightening will be at taming inflation.

And on the subject of monetary tightening, today’s (Friday 3 June 2022), US employment data was one of those economic releases where good news is bad news, as US employers recruited 390,000 workers in May.  This was 72,000 more than economists expected – and as such, we would speculate that this will make Fed policymakers more inclined to aggressively increase US interest rates.

However, while the headline payroll number does show how strong the US employment market is, the participation rate also increased, which suggests to us that Americans are finally coming back into the employment market in a reversal of the 2021 great resignation – and this easing of labour supply not only meant the unemployment rate was unchanged at 3.6%, but more importantly, meant that the average hourly wage rose less than expected, which is positive as it should help to ease concerns that inflation will become embedded.

There was also positive news this week from Mercedes and Volkswagen, as they indicated that car production was nearly back to normal thanks to improved semiconductor supplies – which should also help ease some inflation pressures.

We have another quiet week ahead in terms of actual economic data releases, although the releases we do get will be very important.

The ECB has a monetary policy meeting – and due to forward guidance, Eurozone interest rates are likely to remain unchanged.  However, with Eurozone inflation running at just over 8%, an increase in interest rates at their next meeting on 21 July 2022 seems inevitable – so we will be watching the press conference for clues on the size of the increase.

We also have US CPI (we will be looking for signs to see if inflation is starting to peak); and the University of Michigan Consumer Sentiment index (with wage gains continuing to be outstripped by inflation we will be looking to see if sentiment is indicating any recessionary concerns).

Investment Management Team