Bassanese Bites: Earnings test – July 18 2022

Week in review

Global equities finished only modestly down over the past week, with investors taking solace in encouraging news wherever it could be found. Stocks weakened early in the week out of fear of a very hot US CPI report – and those fears were duly realised, with headline and core inflation rising in the month by a stronger than expected 1.3% and 0.7%. Underpinned by another surge in energy costs, annual headline US CPI inflation hit a new high for the cycle of 9.1%. While core annual inflation is coming down, at 5.9%, the decline remains stubbornly gradual.

By late week, however, the market was at least relieved that Fed hints suggested the hot CPI was not likely to cause it to hike rates by a massive 1% at next week’s policy meeting (only another 0.75% move!). Some heart was also taken on Friday by still solid retail spending (even though a good chunk of this is likely inflation, rather than volumes) and signs of stabilisation in the already heavily depressed University of Michigan index of consumer sentiment.

The consumer survey also revealed a welcome drop in 5-year ahead inflation expectations to 2.8% – back to be more in line with its longer-run average, after a scary surge higher in earlier readings which is thought to have contributed to the Fed’s decision to hike by 0.75% last time around.

Click to read the Full Report