Weekly Investment News 15 August 2022
Domestic Irish News
Inflation remains unchanged Ireland’s annual inflation rate was unchanged at 9.1% in July, its highest level in 38 years. While inflation rose in the hospitality sector and in food and non-alcoholic beverages, there were fewer price increases in housing and utilities. Consumer prices increased by 0.4% on a monthly basis, compared to 1.3% in the previous month.
Global Share Markets
Stocks gained for the fourth week in a row after a strong increase in consumer confidence. Investor optimism has grown following signs of inflation peaking in the US. In Europe, however, the economy is slowing due to continued inflationary pressures including the European gas crisis.
The severe drought being experienced across central Europe is forecast to hit economic activity throughout August. For example, the low level of the Rhine looks set to see the restriction of industrial cargo on the integral river network. In the UK, GDP fell 0.6% in July, although this was better than the consensus forecast of -1.3%. The Bank of England are now publicly stating that they expect a recession before the end of the year
US Federal Reserve
Greater-than-expected drop in inflation In the US, annual inflation decreased from an over 40-year high of 9.1% in June to 8.5% in July, raising investor optimism. However, the Fed remains on its policy-tightening path. The bank seeks to bring inflation closer to its 2% target following Covid-19- related impacts and the war in Ukraine and its effect on energy supplies.
Markets continued on their recent upward trajectory last week, further paring losses for the year so far. For example, the NASDAQ is now up 22% from its 2022 low. Last week, US inflation data (more details below) was well received by investors who are now wagering that the Fed won’t tighten as aggressively. This may well materialise, but there are some cautionary points to note. Inflation may have now peaked, but remains elevated versus history, and significantly higher than the prevailing headline policy interest rates on both sides of the Atlantic.
In the US, the Fed stated that it would need to see ‘clear and convincing’ evidence that inflation is easing before it would amend the current path of higher rates. History tells us that rates usually have to intersect with the inflation rate to put a cap on prices. Further insights into the mindset at the Federal Reserve will be available from the latest Fed minutes which are released on Wednesday.
Source;Irish Life & Zurich Life