Market Report: Forecast beats for US and Chinese CPI, Bank of England expected to increase rates again

by Meg Bratley

Market Report: Forecast beats for US and Chinese CPI, Bank of England expected to increase rates again

Tech stocks outperform as inflation measures fall in US and Asia

Bank of England expected to raise rates for 12th month in a row to 4.5%

RICS housing market report sees another drop in buyer demand

Brent crude continues rebound, at over $77 per barrel

Surprise fall in Disney+ subscribers sees stock fall 5%

Derren Nathan, head of equity research, Hargreaves Lansdown:

“Tech stocks have been the biggest winners on financial markets as hopes grow for a pause in US rate rises.The Nasdaq Composite was up 1.04% to 12,306.44 but indices that reflect the wider economy  were more muted as recessionary fears continued to weigh. US consumer price data for April landed at 4.9%, a smidgen below consensus. That’s a full 1.5 percentage points lower than rates seen earlier in the year. Core inflation, which excludes food and energy prices, is proving much less responsive to tightening by the Fed, with 5.5% annual growth seen last month, very close to where it’s been all year. The S&P 500 rose by 0.45% to close at 4,137.64. And, the Dow Jones Industrial Average ticked down by 0.09%, or 30.48 points, to end the day at 33,531.33.

While big chunks of the world still battle painful price rises, China is dealing with disinflationary forces. Chinese consumer prices for April were up a mere 0.1%, the lowest seen for 2 years. Perhaps more worryingly the producer price index dropped  3.6% more than the 3.2% expected, reflecting continuing weakness in manufacturing. Tech stocks also outperformed in Asian markets with the Hang Seng Tech index up 1.5% in early trading whilst the Shanghai Composite was largely unmoved.

In London, the FTSE 100 is expected to open up slightly, following a 0.4% loss yesterday. Attention will be focussed on today’s Bank of England base rate decision. With inflation still in double digit territory in the UK a 0.25 hike is widely expected. That’s more pain for homeowners on variable who are already paying on average nearly £500 per month more than when the tightening cycle began. It’s no surprise perhaps that today’s monthly report on the housing market by the Royal institute of Chartered Surveyors (RICS) saw buyer demand fall for the 12th month in a row. House prices and the number of agreed sales were also down.

Oil prices have ticked back upwards, continuing the momentum seen earlier in the week, propelled by strong  fuel demand in the US where gasoline inventories fell more than expected.  U.S. jet fuel demand rose to its highest level since December 2019. Brent Crude is up nearly 1% today breaching the $77 per barrel level. However, oil is still down around 11% on the month, as worries linger about the ongoing effects of a US slowdown on global demand.

Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:

“Disney’s results have seen 5% knocked off the valuation, despite results broadly landing in-line with expectations. The disappointment comes as four million subscribers in the streaming business have walked out the door, spooking investors. A large portion of this can be put down to the loss of popular cricket rights in India, but it’s also a suggestion of competition heating up in western markets. Losses in streaming have narrowed, but a large portion of this is down to cost cutting and it’s tough to propel growth in this way. As people make tough decisions about household spending, it’s no longer a given that our households will keep hold of multiple subscriptions. The house of mouse is trying to reach profitability in its flagship streaming service, and recent price increases have seen more customers head for the door than the market feared. There was better news from Disney’s famous parks as customers came roaring back, helping to prop up profits while doing so. The magic of Disney still very much exists, but as far as investors are concerned, the light has dimmed slightly”.

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