US inflation data taken well by markets

US inflation data taken well by markets

Market Review from Realm Investment Management – week ending 13th January 2023

Investors breathed a sigh of relief after the much-anticipated December US CPI report was released on Thursday. The annual inflation rate came in at 6.5%, the sixth straight month of slowing but still remains more than three times above the central bank’s target of 2%. Investors are hopeful that US inflation peaked at 9.1% in June of last year.

Bonds and stocks rallied with much of the action apparently driven by short-covering. Markets are now pricing in a 90% chance that the next move in interest rates will be a smaller-than-previously-expected hike of 0.25% in early February.

With a less aggressive Fed now looking more likely, the US dollar fell at the end of last week and today the Dollar Index (which measures USD against a basket of major currencies) hit 101.77, a seven-month low. The US 10-Year Treasury Yield also fell and finished the week close to its lowest level in four months.

The UK economy expanded slightly (0.1%) in November – better than the forecasted 0.2% contraction. Investors are now seeing less likelihood that the UK fell into recession in the last quarter of 2022.

This Wednesday sees the release of UK inflation figures and Huw Pill, Bank of England chief economist, suggested last week that there is “..the potential for inflation to prove more persistent” due to the tight UK labour market and even if gas prices fall. The market expectation is for a rise in the BoE key interest rate to 4% next month.

UK Market Chart 13th January 2023

US Market Chart 13th January 2023

US Risk Barometer 13th January 2023

Europe Risk Barometer 13th January 2023

Disclaimer: ‘Where the business has expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. The information contained within this communication is believed to be reliable but Realm Investment Management Limited does not warrant its completeness or accuracy.

This communication is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell investments.’

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