I guess that’s why they call it the news
An 8-day winning streak for US stocks was broken on Thursday but that did not stop buyers returning at the end of the week. Stocks and bonds continue to tell a different story, as the dollar rose, and the yield curve further inverted. What is noteworthy perhaps how similar the language is coming from the Bank of England the ECB and the Fed, all seem to be passing on the same message to markets, rates higher for longer. The interest rate-sensitive 2-year US treasury yield popped back over 5% this week as Jerome Powell reminded bond and equity investors not to assume the Fed is done raising interest rates.
US investors seem to ignore the Michigan consumer report as sentiment fell for the fourth month in a row, and inflation expectations rose. Moody’s lowered its outlook on the US credit to negative from stable but held short of downgrading their rating which remains AAA. Concerns on the level of borrowing and the cost, along with the “polarisation” of the two political parties. I assume that to refer to the never-ending saga of the Republicans and Democrats trying to agree on debt ceiling limits which seems every few months to take the Government close to a shutdown, as will be the case again by this Friday if an agreement is not come to. The oil price remains weak, despite the continuing geopolitical risks, another possible sign of poor demand. The copper/gold ratio, which some consider an indicator of economic activity, as one sees greater demand during periods of growth and the other demand in periods of economic uncertainty, has been falling. The gap between the performance of large-cap equities over smaller caps grows ever larger. On a relative basis, small-cap stocks do look rather more attractive than their larger brother.
This week is the prices week as we get inflation reports from both the UK and the US. The US Consumer Price Index is likely the most important report of the week, as a further easing of inflationary pressures is expected. US core inflation is expected to fall to 4%, and the headline number is from 3.7% to 3.3%. Economists are forecasting a further drop in UK inflation on Wednesday from 6.7% to 4.9%, and for the core rate which excludes food and energy to 5.6%. A fall in producer prices and input prices is also expected. We also get the latest jobs data for the UK economy, which is forecast to show another modest rise in unemployment. With an election looming ever closer on both sides of the pond, both incumbent leaders will welcome signs inflationary pressures are further easing. With the price of oil remaining weak we also get a selection of crude oil data out this week from the US. There is plenty for investors to mull over this week coming out from the US aside from inflation, on the state of the economy. This includes further jobs data, industrial and manufacturing production along with more Fed speeches. For Europe, the GDP estimate forecasts the euro area economy to have shrunk by 0.1% quarter over quarter.