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Team Asset Management offer their weekly round-up of global markets
THE early summer rally ended abruptly last week after central banks warned that more interest-rate hikes were needed to send inflation back down to an acceptable level. The blue-chip S&P 500 and technology-focused Nasdaq indices fell 1.8% and 2.6% respectively.
A day before the Bank of England was due to announce its latest interest-rate decision, it was reported that annual UK consumer price inflation had held steady at 8.7% in May, contradicting expectations that it would slow to 8.4%.
Once again food prices (+19.9%) were a key contributor to the inflation remaining high and there were notable price rises for airfares, second-hand cars, live music events and computer games. In contrast, petrol prices fell 14% from a year earlier.
More worryingly, core inflation, which excludes more volatile items such as food and energy, unexpectedly accelerated from 6.8% to 7.1% in May, the highest level since March 1992.
The inflation report persuaded the Bank of England’s Monetary Policy Committee to take a more assertive approach and it raised the benchmark interest rate by 0.5% to 5.0% the following day. Markets were expecting a smaller 0.25% hike.
The nine-member committee voted seven to two in favour of the move, with Swati Dhingra and Silvana Tenreyro arguing that the effects of previous rate hikes would take time to come through. However, the majority, including governor Andrew Bailey, felt much more was needed to bring inflation down to its 2% target rate. Money market futures are now pricing in interest rates reaching at least 6% by December.
The higher interest-rate outlook is being felt acutely in the housing market, leading to calls for the government to cut taxes and/or provide some support to homeowners to offset the increased cost of mortgages. However, Chancellor Jeremy Hunt was quick to dismiss the idea on the grounds that it would aggravate the inflation problem further. As a concession, he subsequently met UK bank executives, who agreed to introduce a minimum 12-month period before banks can repossess homes of borrowers unable to meet mortgage payments.
Federal Reserve chair Jerome Powell spent Wednesday and Thursday in front of Congressional committees in Washington. Aside from facing a grilling over the failure of regulators to prevent the collapse of some regional banks earlier in the year, Powell reiterated the need for the Fed to raise interest rates further as ‘inflation pressures continue to run high’.
In company news, Ocado shares jumped 32% on Thursday on speculation that some technology heavyweights, including Amazon, have an interest in acquiring the business. The online food retailer delivers goods to more than 800,000 customers across the UK and was a big beneficiary of the Covid-19 lockdown.
However, it has been impacted by consumers returning to bricks and mortar stores, as well as by the cost-of-living-crisis, and reported a loss of £501 million, the highest since it started trading 23 years ago. Amazon declined to comment on the reports.
Shares in Pfizer fell 4% on Monday after it halted development on its weight-loss pill Lotiglipron owing to safety concerns. Phase 1 clinical trial data revealed elevated liver enzymes. Pfizer is racing to catch up with competitors Novo Nordisk and Eli Lily, market leaders in obesity treatment.
Energy prices briefly rose over concerns that the armed rebellion led by Yevgeny Progozhin’s Wagner group over the weekend might trigger broader instability and disrupt oil supplies from Russia. However, the gains were short-lived, and Brent crude fell another $2 to $74 a barrel on Monday.
The attempted insurrection had more of an impact on the Russian rouble, which fell to a 15-month low versus the US dollar on Monday morning.
