Market round-up: 12-16 July

Thomas Watts


This week

The week that was saw record temperatures in parts of the US and the expectation of a heatwave this weekend in the UK. While the rising temperatures here in the UK are a reason to cheer, the rising prices of goods and services on both sides of the pond could be more problematic for consumers.

Official data released on Tuesday in the US reported that inflation has risen to 5.4% (year-on-year), hitting a 13-year high. Breaking down the data further, there were big price increases for used cars and trucks, gasoline and fuel oil. Here in the UK, inflation hit 2.5% on Wednesday, ahead of consensus estimates, and the highest level since 2018. Again used cars were a driver of this, as well as food prices. While mild inflation is a target of central banks, it’s worth noting that both prints this week were higher than the 2% long-term inflation targets of the UK and US central banks. The reaction from markets was fairly mute, with bond yields rising only slightly, perhaps suggesting that markets still expect inflation to be transitory.

The recent market narrative of peak global growth and potential withdrawal of government support measures continued to hold back equity markets this week which struggled to make ground. Rising delta variant COVID-19 cases also hurt risk assets and led investors to safe-haven assets during the week.

By Friday morning however, we had seen UK and European equities begin to rally despite the delta variant concerns, as upbeat company earnings and enthusiasm around travel stocks helped propel the market.

The positive end to the week in Europe was not felt in Japan unfortunately, with the Bank of Japan cutting its 2021 growth forecast as measures to prevent COVID-19 impacted consumption.

Next week

With the coming week ushering in something of a heatwave according to meteorologists, it is only fitting that we start proceedings in the land of the rising sun, Japan.

Economists are still at loggerheads as to whether the current spike in inflation is merely transitory or the start of a much broader trend, so Japan's CPI figures should give us an insight into how prices are rising around the world. With Japan suffering from notoriously low inflation, despite monetary and fiscal intervention over the decades, it will be interesting to see if there has been an increase in prices, especially as the nation has suffered more than most with a high COVID infection rate. With last month’s data showing a positive reading for the first time since April 2020, many will be hoping the trend can continue.

With Japan still yet to see sustained inflation, one country where this is not an issue is the US, which releases its building permits and housing stats data the following day. House prices contribute a great deal towards inflation, not only due to the rise in their own prices but also due to the ripple effect they have on the economy, from the estate agent who sells the property, to the homeware and DIY shops that furnish the property. Both pieces of data should combine to give us a comprehensive view of the state of the US housing market, especially as it picks up pace from the COVID nadir experienced last year.

As the sun sets on another week, Europe will be the main focus for investors as a slew of PMI data is released from the continent's largest economies. Both France and Germany release both their services and manufacturing readings, followed by a broader EU wide gauge. PMI data is an important part of the economist’s tool kit as it acts as a leading indicator of economic health as businesses react quickly to market conditions, with their purchasing managers holding perhaps the most current and relevant insight into the company's view of the economy.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in July 2021.