Week ending 13th August 2021.

World Markets at a Glance 130821

After last week’s market obsession on the US employment data release, this week’s main focus was on Wednesday’s (11 August 2021) US CPI inflation reading.

And thankfully, the inflation reading did exactly what we have been forecasting in these market updates:  the month-on-month increase slowed dramatically and as a result, headline inflation was unchanged on the year at 5.4%, while the core reading (which excludes volatile items such as food and energy) declined to 4.3% from 4.5% in June.

We see this as confirmation that the current inflationary pressures are only temporary and should quickly fade as the distortions pass through the year-on-year calculations, rather than result in persistently high inflation.

Additionally, when we look at the individual sub-categories, used car prices (which have been a big contributor to the overall increase over the past couple of months), are no longer pushing inflation higher – and more importantly, suggests to us that the recent semiconductor supply chain issues (which have been impacting new car production) are potentially starting to ease.

Consequently, this week’s data should provide the US Fed policymakers with the comfort to focus on the future trajectory of inflation rather than worry about its elevated current level – and as such, we continue to believe that US interest rates (along with those in the UK, Europe and Japan) will remain low for the foreseeable future.

Looking ahead to this coming week we have UK employment (unemployment rate and weekly earnings); UK CPI inflation; US, UK & Chinese retail sales; and Japanese & Eurozone Q2 GDP data.

Investment Management Team