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Week in Review: 17-21 July 2023

Summary and Comment

Consumer price inflation in the United Kingdom dropped to 7.9% in June 2023, marking the lowest level since March 2022 and slightly below the market consensus of 8.2%, mainly due to a slump in fuel prices. Additionally, the core rate, which excludes volatile items such as energy and food, eased to 6.9% from May's 31-year high of 7.1%.

 

In Canada, the annual inflation rate fell to 2.8% in June of 2023, from 3.4% in the previous month, as gasoline prices declined further. Transportation costs fell by 3.4%, extending the 2.4% decline in the previous month amid a 21.6% slide in the price of gasoline. Food inflation remained steady at 8.3%. Also, soaring interest rates from the BoC pinned the increase in mortgage interest costs (30.1%).

 

Building permits in the United States dropped by 3.7% to a seasonally adjusted annual rate of 1.44 million in June 2023. This value is ~25% lower than the 2022 peak, but is close to the historical average - the following quarters will indicate whether we'll have a significant slowing in new construction or not.


Retail sales in the US rose 0.2% month-over-month in June of 2023, following an upwardly revised 0.5% increase in May, but below forecasts of a 0.5% rise. The so-called core retail sales which exclude automobiles, gasoline, building materials and food services surged 0.6%. Retail sales data continued to signal consumer spending remains resilient, with inflation falling to two-year lows in June. Retail sales are not adjusted for inflation.


For the week, the main stock market indices are generally up, but the NASDAQ 100 lost 0.9 %. The S&P500 was up 0.7%, and the RUSSEL 2000 rised 1.5%. Gold and silver are relatively stable, with variations of +0.3% and -1.4%, respectively. The barrel of WTI gained 2.1% this week (now at ~76 USD), while natural gas rised 8.9%. Bitcoin continues stable around 29 900 USD.

The relative strength of the US dollar recovered 1.1%, and bond yields were stable. The US bond yield is peaking at 5.48% in 6 months from now, and the 10-year yield now sits at 3.84 %. The yield curve remains inverted (a recession indicator).

Next week, the highlights will be the interest rate decisions coming from the FED and the ECB - and their hawkishness towards future monetary policy. The slowing in the headline inflation around the world is quite visible, due to the base effect (comparison with the previous year) - will this suffice to bring long-term inflation to 2% (as central banks state)?

In the meanwhile, a pullback in the stock markets is possible, given the slightly overbought conditions observed in many cases. As with other FED weeks, this one is likely going to be volatile.

Sources

https://www.tradingeconomics.com


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