Week ending 24th June 2022.

Global equity markets rose this week due to falling inflation expectations – which hopefully means that central bank policymakers will scale back their expected aggressive interest rate increases.

This week’s PMI data came in well below expectations – confirming our recent comments that the global economy was slowing.  For example, US Manufacturing PMI came in at 52.4 for June.  While it is positive that the reading was above 50 (50 is the line separating expansion and contraction – so US manufacturing is still expanding), this was a big drop from May’s reading of 57.0 and was well below economists’ expectations of 56.0.

Although it was a similar story in Germany’s manufacturing based economy, as the manufacturing PMI reading fell from 54.8 to 52.0 (well below expectations of 54.0), the accompanying statement stated that prices for both goods and services rose at a slower rate in June compared with May – which hopefully suggests that we may be starting to reach peak inflation.

Additionally, today’s (24 June 2022) revised University of Michigan reading for long-term inflation (which they define as 5-10 years) came in at 3.1% compared to the earlier reading (from 10 June 2022) of 3.3% – which is very positive as it suggests to us that the recent talk that inflation expectations have become unanchored are overblown.

Furthermore, we would speculate that the initial reading of 3.3% helped sway Fed policymakers to increase US interest rates by 0.75% instead of 0.5% that they had previously indicated – and therefore this lower reading may help to bring forward the end of the Fed’s aggressive monetary tightening.

Looking ahead to this coming week, in the US we have durable goods orders, consumer confidence and ISM data.  Elsewhere we have Eurozone CPI inflation; Chinese PMI; and Japanese retail sales, industrial production and CPI inflation.

Investment Management Team

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