Quilter Cheviot|Weekly Comment

Stocks rally as US inflation declines

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Stock markets enjoyed a strong move higher last week as US inflation data showed that price pressures are cooling in the world’s largest economy. The MSCI All Country World Index gained 3.4% last week, taking year-to-date returns to 16.6%.

The main event last week was the release of US consumer price index (CPI) data on Wednesday, with the headline figure coming in at 3.0% in annual terms, the slowest pace in over two years. There was also good news from the core reading, which while still coming in higher at 4.8% year-on-year, was its lowest level since October 2021.

Broad-based US stock benchmarks advance 2.4% on the week (+18.4% YTD) and indices with a greater technology weighting outperformed, adding 3.3% by Friday’s close (+35.5% YTD). Earnings season began with several large banks reporting second quarter results that were fairly good on the whole. This week there will be an increasing flow of Q2 earnings reports which will go some way to driving market sentiment.

Given the strongest catalyst for gains emanated from the US, it is perhaps surprising that European shares outperformed their US counterparts on the week. The MSCI Europe ex UK index rose 3.2% (+12.7% YTD) for its biggest weekly gain in more than three months. In addition to the inflation data, hopes that more economic stimulus is coming in China provided a further boost. UK stocks moved back into positive territory for 2023 with a 2.5% weekly gain (+1.9% YTD).

The pound posted a strong weekly rise against the US dollar, on the rising expectation that the Bank of England will need to raise rates relatively further than the Federal Reserve to get inflation back down to more palatable levels. The pound ended the week at US$1.31, up from US$1.28. UK bond yields declined amidst a global rally in fixed income markets, although strong wage data pared the move to some extent. The 10-year gilt yield finished down 21 basis points on the week, at 4.44%.

UK wages, excluding bonuses, grew 7.3% in annual terms for the three months through May, suggesting inflation may be becoming more entrenched throughout the economy. There were some signs of softening in the labour market though, as the unemployment rate ticked up to 4% from 3.8%. UK CPI will be released this week and although a further drop is expected, to 8.2% year-on-year from 8.7% previously, the level still remains a long way above the Bank of England’s target. What is more, the last four releases for this data point have come in above consensus expectations.

Read the original article from Quilter Cheviot here…

The value of your investments and the income from them can fall and you may not recover what you invested.

Image to show we are a member of the FT Top 100 Financial Advisers 2023