US Inflation Jump Sparks Sharp Equity Retreat


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US Inflation Jump Sparks Sharp Equity Retreat

Global equity markets were once again on the backfoot last week as surprise US inflation data shook investor sentiment once again. On a monthly basis, US CPI rose by 1.0% during May, a 70 basis point (bp) increase over the prior month whilst annualised, the headline index topped 8.6%. Core inflation, which excludes more volatile components such as fuel and food also came in hotter than expected [1]. The S&P500 slumped by -5.1%, its biggest weekly decline since January with technology and growth focused names leading the market lower. US treasury yields also spiked higher, reflecting expectations of an acceleration in the Federal Reserve’s rate hiking cycle; the 10-year yield jumped by 20bps to 3.16%.

Elsewhere, domestic equities also retreated with the FTSE100 and FTSE250 falling by -2.9% and -3.0% respectively. The increase in gilt yields was even more significant than in the US as the 10-year reached 2.44%, a 29bps rise over the prior week. Meanwhile on the Continent, the slump was even more significant, the MSCI Europe ex UK closing the week -4.4% lower. The ECB also signalled its intention to lift it base interest rate by 25bps next month as it commences its own battle against inflation [2]. The only major equity markets to see positive returns last week were found in Asia where the Nikkei 225 in Japan and Shanghai Composite in China closed Friday +0.2% and +2.8% higher respectively.

Moving to commodities, the rally in oil prices showed no signs of abating as Brent Crude rose by a further +1.8% to $122 a barrel. Brent has risen by more than +19.0% over the past three months alone due in part to a lack of refining capacity. As for the metals, copper declined by -0.5% to $9,447 a tonne whilst gold was flat at $1,858 an ounce. [3]

Week Ahead

The central banks come firmly back into focus this week with both the Federal Reserve in the US and Bank of England in the UK hosting policy meetings. Both are expected to lift interest rates once again, the former by 50bps to 1.50% and the latter by 25bps to 1.25% as they ramp up their efforts to tame surging inflation. In terms of data, retail sales are also published in both countries whilst unemployment data covering the three months to the end of May in the UK is also worth keeping an eye on.

In the Eurozone, it’s a somewhat quiet week for headline data with industrial production and economic sentiment from research house ZEW the only figures of note this time around. The same can’t be said for China where industrial production, retail sales, unemployment and fixed asset investment numbers are all published during the early hours of Wednesday morning. Meanwhile in Japan, the Bank of Japan also hosts a policy meeting although no changes are expected to be made to its base rate. There are no major macro figures due from the country this week. [4]


[1], 13/06/22

[2] T. Rowe Price, 13/06/22

[3] Refinitiv, 13/06/22

[4] Forex Factory, 13/06/22

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