Week ending 11th August 2023.

As you can see from the accompanying table markets ended the week mostly lower as stocks managed to recover some ground as the week unfolded.

Investors focussed on US inflation data, with the consumer price index rising 0.2% in July 2023, contributing to a 3.2% year-on-year increase. The latest report seemed to have been largely incorporated into market expectations, resulting in a subdued response. Whilst the consumer price index came in below economist forecasts in July, suggesting a continued drop in inflation, the producer price index exceeded expectations but indicated most prices were lower than the previous year. Despite this mixed data, investors anticipate the Federal Reserve will pause interest rate hikes in September.

The Federal Reserve is likely to maintain its current stance for the time being, which means potential rate hikes remain on the table, the Fed is expected to communicate this consistently. However, the certainty of ending rate hikes is unclear, as the Fed awaits the August CPI and jobs report to make informed decisions.

The UK economy continues to demonstrate its reliance despite consumers and businesses facing surging interest rates. The latest GDP figures this week revealed the economy expanded by 0.2% on quarter in Q2 2023, beating widespread zero-growth forecasts.

Economic growth was boosted by strong growth in June with GDP rising by 0.5% on month and recovery in the manufacturing sector and decent weather over the three months to June. The stronger than expected growth added to bets of more interest rate hikes from the Bank of England when the monetary policy committee meets on 21^st September. We don’t think rates can be pushed much further with the effects of previous increases yet to materialize in the wider economy.

Also, in Ireland this week industrial production increased by 2.5% on year in June 2023, up from a 12.4% fall in the previous month thanks to a large rebound in manufacturing. In addition, the annual rate of inflation in July 2023 fell to an 18-month low to 5.8%. However, core inflation (excluding energy and food) remains stubbornly high maintaining pressure on households. The European Central Bank have maintained the possibility of another hike in September and policymakers have expressed their commitment to sustaining interest rate hikes if there is an ongoing upturn in core inflation.

Coming up next week we have Japanese GDP, Chinese unemployment, industrial production and retail sales. We also have UK unemployment, retail sales and inflation, US retail sales and the minutes from the Feds last policy meeting.

Kate Mimnagh, Portfolio Economist