Week ending 18th August 2023.

Markets ended the week lower.

On Wednesday (16 August), the minutes from the US Federal Reserve’s late July meeting disclosed a divergence amongst policymakers regarding the necessity of further rate hikes. While some participants cautioned against the potential negative economic consequences of excessive rate increases, others stressed the ongoing importance of tackling inflation, implying the potential for additional rate hikes. Many believe that the Fed has most likely finished its tightening cycle, however policymakers haven’t strayed from their data-dependent stance and could potentially hike rates again if the data supports.

Retail sales in July took centre stage, revealing an impressive 0.7% month-over-month surge, surpassing consensus estimates of 0.4%. Sales were boosted by online shopping, specifically Amazon Prime day in addition to people splurging on hobbies and sporting goods. The report underscored the resilience of consumers in the face of higher interest rates adding to hopes of a soft landing.

In the UK retailers encountered a more significant decline in sales during July than anticipated, influenced by persistent heavy rain that discouraged shoppers, compounded by the impact of elevated inflation and fourteen consecutive interest rate hikes. Policymakers will need to consider that higher interest rates are starting to weigh on consumers, despite high wage growth. Official statistics indicated that sales volumes in the past month experienced a 1.2% decrease compared to June, greater than the 0.5% drop expected. The performance of the sterling currency weakened as investors evaluated the extent to which this sales decline signalled a potential slowdown in the UK’s lacklustre economy.

Investors and economists are directing their attention to Jackson Hole, Wyoming, where the US Federal Reserve’s annual three-day economic policy symposium is set to begin on August 24. Central bank policymakers from around the world will discuss the issues faced by economies, amongst the esteemed speakers, Fed Chair Jerome Powell will be featured. We may see some noise in markets with investors readily awaiting comments made by central bank leaders.

The forthcoming week will bring the final University of Michigan Consumer Sentiment report for August in the US, along with Irish and UK consumer confidence and PMI data releases from across Europe and UK. Chinese loan prime rates will also be announced next Monday, investors are hoping the People’s Bank of China cut rates to help support the struggling property sector.

Kate Mimnagh, Portfolio Economist