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Week ending 19th August 2022.

22nd August 2022

Global equity markets gave back some of last week’s impressive gains after a number of Fed policymakers said that the US needs higher interest rates to tame inflation, even if that results in a recession.

Additionally, on Wednesday (17 August 2022) we saw the minutes of the last Fed monetary policy (which was held on 27 July 2022) and while policymakers essentially acknowledged that economic growth momentum was slowing and repeated that there was a risk of over-tightening monetary policy, they also suggest that Fed policymakers aren’t worried about slower economic growth or over-tightening as they believe higher interest rates are required to get demand back in-line with supply in order to prevent the current high inflation becoming entrenched!

Despite the fact that we believe it will actually be difficult for prices to keep rising given that we will soon have respite from what is known as ‘base effects’, not to mention the recent fall in oil and other commodity prices, it looks as though Fed policymakers are still inclined towards another large interest rate increase at their meeting on 21 September 2022, bearing in mind that we still have an awful lot of important economic data releases before then.

Interestingly, we have the annual Jackson Hole Economic Policy Symposium next week (25 – 27 August 2022) – and rest assured we will be intensely listening to Jay Powell’s (the Fed Chair) speech for any profound comments.

Elsewhere, data released today (19 August 2022), showed that UK retail sales increased by 0.4% during July.  Economists had forecast a contraction of 0.3% – and this coupled with the resilient UK employment data released on Monday (please see here), may embolden the BoE to join the trend for a large interest rate increase when they next meet on 15 September 2022.

This coming week, in addition to Jackson Hole, we have US, UK, Eurozone & Japanese PMI; US housing data; US durable goods orders; and Eurozone consumer confidence.

Investment Management Team

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