Markets Weekly podcast – 19 August 2024
Where next for US and UK inflation?
19 August 2024
Tune in as host Julien Lafargue shares fresh insights on key events shaping financial markets. This week, he covers better-than-expected inflation data from the major regions and the most recent US employment figures, as well as the implications for central bank policy.
You can also stream this podcast on the following channels:
-
Julien Lafargue: Welcome to a new edition of Markets Weekly podcast. My name is Julien Lafargue, Chief Market Strategist at Barclays Private Bank, and I will be your host today.
It's going to be a fairly quick podcast, but we're still going to have a few items to cover in terms of the week that was, and a relatively busy agenda for the week ahead. So, let's get cracking.
It was a calmer week in markets. In fact, it was a pretty positive one. The S&P gained 3.9% and has now erased its post-nonfarm payroll losses. So, if you just came back from two weeks’ of holidays, it's like nothing has happened. It was somewhat light on the data front, but the data we got, mostly around inflation and consumer spending in the US and the UK, was encouraging.
So, starting with the US. Headline and core CPI eased for the fourth consecutive month in July, ticking down one percentage point to 2.9% and 3.2% year over year, respectively.
We also got, unusually, as it typically comes afterwards but this time it came in beforehand, the producer price indices, PPI, which came in at 2.4% year over year, lower than expected. The consensus was at 2.6%, which is interesting, as it shows that some of the price pressure that we saw, especially coming from shipping rates, given the conflict that we're seeing across the world impacting shipping lines, those higher costs haven't really come through to the PPI. And PPI tends to be, to some degree at least, a leading indicator for CPI.
So, all in all, a pretty decent picture when it comes to US inflation.
Now, the other datapoint we got in the US was retail sales, and they also were stronger than expected, at 1% month on month. That was, in fact, significantly higher than expected. Now, one interesting thing to note about those retail sales is the fact that auto sales were up almost 4% month on month in July. And this can be attributed to a base-effect linked to a cyberattack in June, that prevented dealerships from registering sales for a few days. So, there might be a bit of a compensation for that there which has propped up the entire retail sales figure.
If you look at sales ex-autos, they, in fact, moderated to 0.4% from 0.5%. Yet, it's a pretty good result for an economy that has yet to see rates drop and where unemployment has been steadily rising.
Finally, in the US, we also got this datapoint that people have started to watch very closely recently, which is the US weekly jobless claim, and that was more good news. At 227,000, they were lower than expected. The consensus was looking at 235,000. And it was, most importantly, below the previous week. As a reminder, that was 234,000. So, it does look like the US job market is not imploding.
Now, moving on to the UK. Similar datasets there, with inflation softer than expected, at 2.2%. The consensus was at 2.3%. But most importantly for the Bank of England, services inflation fell from 5.7 % to 5.2%. And that has been the stickier part of the inflation basket in the UK, and something that the BoE pointed to as a problem for the UK economy, so it's good to see positive developments there.
We also got UK retail sales. And, similar to the US, they were pretty strong and ex-auto fuel, up 0.7% month on month. The consensus was looking at 0.6%.
So, where does that leave us? Well, first, recession fears have clearly abated. Now, the same way that it was premature to call for the end of the world, and a Fed emergency cut, after a couple of disappointing datapoints, it would be wrong to say that we now have the all-clear when it comes to the US economy.
Our central scenario remains one where growth will slow in the quarters ahead, but not dramatically so. Second, when it comes to central banks, with inflation continuing to move in the right direction, it’s not representing much of a menace anymore, suggesting it seems wise to start normalising monetary policy, especially if the macro picture is somewhat mixed.
As such, we continue to expect the Fed to cut in September, with the BoE following suit, likely in November. In the US, this view was actually further reinforced last week, with two members of the FOMC, Bostic and Musalem, hinting at a cut in interest rates next month.
So, in summary, we're not changing our call from last November that 2024 is likely to be a year characterised by lower growth, lower inflation and lower rates.
So, that's it for the week that was. Looking forward to this week, the main event will take place on Friday, with Fed chair Jerome Powell's speech at Jackson Hole, the main gathering of central bankers. But, before that, we will get the minutes from the Fed's last meeting, as well as the Flash PMIs for the month of August, as well as some wage indicators for the eurozone.
On our side, we will be taking a couple of weeks off. We should be back on 9th September with not only our weekly podcast, but also a new edition of our monthly publication Market Perspectives, so stay tuned for that.
Now, in the meantime, we hope you will get to enjoy some rest too. And, as usual, we wish you the very best for the trading weeks ahead.
Previous editions of Markets Weekly
Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.
This communication:
- Has been prepared by Barclays Private Bank and is provided for information purposes only
- Is not research nor a product of the Barclays Research department. Any views expressed in this communication may differ from those of the Barclays Research department
- All opinions and estimates are given as of the date of this communication and are subject to change. Barclays Private Bank is not obliged to inform recipients of this communication of any change to such opinions or estimates
- Is general in nature and does not take into account any specific investment objectives, financial situation or particular needs of any particular person
- Does not constitute an offer, an invitation or a recommendation to enter into any product or service and does not constitute investment advice, solicitation to buy or sell securities and/or a personal recommendation. Any entry into any product or service requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding documents
- Is confidential and is for the benefit of the recipient. No part of it may be reproduced, distributed or transmitted without the prior written permission of Barclays Private Bank
- Has not been reviewed or approved by any regulatory authority.
Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.
Barclays is a full service bank. In the normal course of offering products and services, Barclays may act in several capacities and simultaneously, giving rise to potential conflicts of interest which may impact the performance of the products.
Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation. Law or regulation in certain countries may restrict the manner of distribution of this communication and the availability of the products and services, and persons who come into possession of this publication are required to inform themselves of and observe such restrictions.
You have sole responsibility for the management of your tax and legal affairs including making any applicable filings and payments and complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain independent tax and legal advice tailored to your individual circumstances.
THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.