The noise

  • The UK’s headline inflation rate fell to 7.9% in the 12 months to June, down from 8.7% for the 12 months to May. The lowest inflation reading in over a year came as a positive surprise to economists who had forecasted a drop to 8.2%. UK inflation remains the highest among the bigger developed economies, although markets now believe a 25 basis point rate hike is likelier next than the 50 basis point increase previously priced in. Following this inflation data, sterling weakened vs the US dollar and British government bond prices soared.

  • The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, reaching two-month lows amid persistent labour market tightness and thwarting the Federal Reserve’s efforts to slow demand. Despite a slowing economy, many employers seem hesitant to downsize their workforce as a result of the tight labour market, as they fear challenges in rehiring if the economy rebounds within six or twelve months.

  • Companies leading the AI charge such as OpenAI, Alphabet, and Meta have made voluntary pledges to the White House to adopt certain measures, such as watermarking AI-generated content, as part of their efforts to enhance the safety of AI technology. These firms have also committed to thoroughly test systems before releasing them and to share information about how to reduce risks and invest in cybersecurity.


‚ÄčThe numbers


The nuance

Some market participants have described the latest UK inflation data as a ‘watershed moment’. Indeed, the UK’s headline inflation rate pleasantly surprised analysts this week, coming in 0.3% lower than expectations at 7.9% for the year to June. One could argue that the gap between expectations and reality is minimal, however it has made all the difference with markets. Prior to the latest report markets were anticipating peak interest rates of 6.5%, some even thought 7% might be necessary to get the UK out of its unique predicament. Now, markets believe the Bank of England’s key interest rate may not reach 6%.

This change in expectations can’t all be attributed to the most recent UK inflation data. Market optimism had been on the rise as US inflation and other economic indicators had indicated a slowdown in inflation in the United States. It seems clear now that markets believe that the UK has finally hit a turning point, and with a likely 25 basis point interest rate hike in August, that we may be nearing the peak for savings interest rates.

 


All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.

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