Client update - 16th June 2023

That settles it. It is Beyonce’s fault. Central banks seem very keen to find an excuse that inflation is not their fault, so they must have been delighted by this week’s news where Danske Bank has concluded that Beyonce’s choice of starting her world tour in Stockholm in May managed, all by itself, to push up Swedish inflation. The two sold out concerts apparently led to a sharp increase in hotel prices as a result of almost 100,000 people attending the two-night performance and was a key contributor to higher than expected monthly inflation and by herself she contributed 0.2% of the monthly rise in inflation. There we are.

The US Federal Reserve (Fed) Chair Jerome Powell did not seek to blame popular entertainment for the US inflation numbers, that were broadly as expected this week and allowed the Fed to pause its fifteen month run of increasing interest rates. After ten consecutive rate rises, the Fed stepped back – possibly for good, from further rate rises. The market expectations are still for a further two rate rises before the process finally comes to an end, but this will depend if the Fed wants to keep hiking into a possible recessionary environment. Powell suggested that it was appropriate to “moderate our rate hikes as we get closer to our destination”, thus suggesting he was not finished quite yet, but the end is definitely nigh. The Fed remain keen to take some more time to assess the impact of previous rate rises and the liquidity being withdrawn from the market post the banking wobbles in March and the debt ceiling stress in May.

Despite this uncertain situation, equities in the US have continued to gain ground as softening employment data and moderating consumer spending suggest that two rate rises may not be required after all as inflationary forces are receding quickly.

The European Central Bank raised rates by 0.25% yesterday to 4%, and were determined in their rhetoric that there were more rate rises to come to combat inflation as it would remain “too high for too long” and would not return to acceptable levels for another two years. That leaves us with the Bank of England, who next week are expected to announce another 0.25% rate rise. That is unless the Governor Andrew Bailey follows the advice from Danske Bank and instead decides to cancel Harry Styles return to Wembley stadium to reduce inflationary pressures! Having said that, Beyonce has just played five tour dates in London, so we are probably already doomed. Do have a good weekend.