The Market Review: 26 June 2023

Written by Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s CIO – Multi Asset, the Market Review is packed with the most interesting and impactful events of the past week from the global financial markets.

Market Recap.

Equity markets paused their advance, after a strong run over the last several weeks, as central banks sent mixed messages. The Bank of England surprised the markets with a larger-than-expected interest rate hike, as the economy proved more resilient to higher interest rates than anticipated. Consequently, equities were generally weaker, and bonds produced mixed returns.

News.

The Bank of England unexpectedly raised its interest rate by 0.5% to 5.0%, reaching the highest level since 2008. The Monetary Policy Committee accelerated tightening due to stronger inflation data. Inflation remains well above the target rate of 2%, raising concerns about its persistence. The Bank of England faces pressure to maintain its ongoing tightening campaign.

Geopolitics.

Russian warlord Yevgeny Prigozhin (Wagner) and his troops reached a deal with Moscow, ending their armed uprising after they threatened to advance on Moscow. The revolt was due to Wagner’s anger at how Russian military officials have handled the war. Wagner remained silent after calling off the insurrection, and he is expected to travel to Belarus.

Inflation.

UK annual inflation remained at 8.7% in April, surpassing expectations of 8.4%. Core CPI, which excludes food and energy, rose to 7.1%, the highest since March 1992. Increasing prices for air travel, recreational goods, and second-hand cars offset falling fuel costs and slowing food inflation. Core inflation reached 7.1%, excluding volatile items.

Central Banks.

The Bank of England raised its interest rate by 0.5% to 5.0%, pushing borrowing costs to their highest level since 2008. UK Prime Minister Rishi Sunak supported the decision. Mortgage holders in the UK face higher rates, with over 1.4 million households potentially encountering 6% mortgage rates upon renewal in 2023.

Commodities.

The oil price closed below $69 per barrel, marking a 4% decline for the week. Concerns about global economic uncertainties and higher interest rates rose due to their potential to impact global growth and energy demand. The Bank of England and the Norges Bank raised interest rates by more than expected, contributing to the decline.

ESG.

The US Department of Agriculture approved two companies to sell lab grown chicken, providing an alternative to traditional meat production. Lab-grown meat is cultivated by feeding nutrients to animal cells in tanks, reducing the carbon footprint associated with animal agriculture. This sustainable approach aims to address concerns related to conventional meat production methods.

Week Ahead. 

In the UK, the final estimate of first quarter GDP, monetary indicators, and nationwide housing price data will be published. Europe will publish preliminary inflation rates for the Eurozone, which is expected to fall. The ECB Forum on Central Banking in Portugal will gather central bank governors, including Lagarde and Jerome Powell, to discuss macroeconomic stabilisation amid volatile inflation.

Sources: Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s CIO – Multi Asset, Multi Asset Investment Team, Financial Times, The Wall Street Journal, John Hancock, Morningstar, Trading Economics, ESG Today

Risk Warning: These are Nathan’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.

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