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Week in Review: UK inflation accelerates

UK money markets responded by pricing in a 50 basis-point hike at the next central bank meeting on September 10.

Inflation has soared worldwide this year primarily on surging energy prices, fuelled by the invasion of Ukraine by major oil and gas producer Russia. Higher inflation in the UK has also seen massive strike action in the railway and postal sectors as higher prices continue to erode the value of wages.

US stocks ended the week lower as investors assessed the latest economic earnings data against the outlook for interest-rate hikes. The midweek release of the Federal Open Market Committee (FOMC) July policy meeting minutes saw policymakers reiterate that ongoing rate hikes remain appropriate. Officials also noted that a slower pace of hikes will become appropriate at some point. The markets await Fed Chair Jerome Powell’s address at the annual Jackson Hole Symposium on Friday for updated views.

Shares in Europe pulled back amid renewed fears that central banks would need to be more aggressive in combatting inflation. In local currency terms, the pan-European STOXX Europe 50 Index ended the week 1.2% lower while the UK’s FTSE 100 Index added 0.66%, as the pound weakened against the U.S. dollar.

In his latest nightly address, Ukrainian president Volodymyr Zelensky, has warned Ukrainians to be vigilant in the coming week as they prepare to celebrate their independence day on Wednesday. This week marks six months since Russia invaded Ukraine with neither side able to make material gains of late, with Western officials seeing the war at a near standstill.

China’s Xi Jinping and Russia’s Vladimir Putin are expected to attend the G-20 Summit in Indonesia in November, Indonesian President Joko Widodo said this week.

In the U.S. the three major equity indices ended lower, the S&P 500 ended the week down 1.21%, the Dow Jones closed marginally down 0.16% while the Nasdaq ended the week 2.6% in the red. In Asian markets, the Nikkei 225 ended the week higher up 1.3% on improved economic data. The People’s Bank of China unexpectedly cut the rate on its Medium-term Lending Facility to 2.75% on Monday amid a slump in residential property sales. This week, China also reported that industrial production, retail sales and fixed asset investment were all weaker than expected in July. China’s benchmark Shanghai Composite Index ended the week lower (-0.57%).

On the commodities front, Brent Crude oil ended the week at $95.76 while Gold Spot ended at $1747, down 3% for the week.

Market Moves of the Week:

The South African Reserve Bank’s (SARB) Prudential Authority this week issued guidance to confirm that banks in the country can work with crypto exchanges. The note advises banks that risk assessment does not necessarily mean avoiding risk entirely by, for example, terminating client relationships with crypto asset service providers.

In corporate news, Just Eat Holding has agreed to sell 33.3% stake in iFood, a leading food delivery service in Brazil and Colombia, to Naspers division Prosus. Prosus has been in talks to increase its stake in iFood since 2020. The deal is expected to close in the fourth quarter of 2022.

The JSE all share index ended the week down 1.4%, in line with global markets. The resources sector led the decline (-2.96%), followed by financials (-2.25%), industrials (-0.55%), and the South African Listed Property index also ending down 1.8% over the week.

The U.S. dollar was stronger over the week as Fed’s minutes pointed to U.S. interest rates staying higher for longer, boosting the dollar and hurting emerging market currencies like the rand. This coupled with the uncertainty around the fate of Finance Minister Enoch Godongwana, who’s battling allegations of sexual assault saw the rand ending the week weaker at R17,00/$, R20.08 against the Pound, and R17.06 against the Euro.

Chart of the week:

What the chart is telling us:

The Bank of England has come under growing criticism that the central bank has been to slow in raising rates to tackle surging inflation. The consumer price index rose 10.1% annually as at end of July, according to estimates published by the Office for National Statistics on Wednesday. Rising food and energy prices made the largest contribution to the annual inflation rate. The Bank of England now expects inflation to top 13% in October.

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