Market Update – 15th May 2024.

On Tuesday this week, data on the UK labour market indicated a potential slight tempering of the jobs market. Data from the Office for National Statistics showed that the unemployment rate increased to 4.3%. Although the figure is the highest since the three months to July 2023, it is – however – still relatively low overall, suggesting that the economy is holding up well in the face of current higher interest rates. And yet, average wages were also shown this week to have remained sticky, rather than declining in line with forecasts. For the tenth consecutive month, wages have risen at a quicker pace than inflation; regular wages (excluding bonuses) increased by 6.0% in Q1 of 2024 in comparison to the same period a year earlier. While the data has been a mixed bag, it is not thought to materially change the Bank of England’s stance on rate cuts. Huw Pill, the Bank’s chief economist said it is not unreasonable to expect a rate cut in summer.

Over in the US, the producer price index, which measures what producers receive for their goods, came in on Tuesday higher than expectations. The report revealed that wholesale prices jumped 0.5% for the month of April. Although this leaves inflation looking a little hotter than maybe investors would like, it should be noted alongside both that March’s reading has been revised to show a decline and that Fed Chair, Powell, called the report “mixed” – suggesting that policymakers definitely aren’t second guessing their decision to leave rates unchanged at their last meeting. Powell also commented that patience is needed to “let restrictive policy do its work”.

In China, policymakers are about to execute their latest initiative to spur on economic recovery. The finance ministry announced on Monday that 1 trillion yuan of bonds are due to be issued beginning on the 17th of May with term time horizons of 20 to 50 years. As their issuance was talked about back in March, the announcement saw bond yields momentarily dip. However, since the market had already anticipated that bonds would be distributed in healthy supply, it is likely that investors will soon turn their focus to more pressing matters, namely towards expectations for the People’s Bank of China to offer further liquidity support.

Still to come this week we have US retail sales and CPI data, which is expected to come in at 3.4% for April versus the 3.5% reported in March, Japan’s GDP figure and China’s retail sales.

Nicola Tune, Portfolio Specialist 

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