Market Pulse - The week in review - May 15th 2023

Duncan Presant - May 15, 2023
The US inflation picture continues to steadily improve, confirmed by the latest headline CPI print (4.9% y/y).



▪ The US inflation picture continues to steadily improve, confirmed by the latest headline CPI print (4.9% y/y). Goods prices have been in disinflation for some time, shelter prices were lagging but have now started to improve and the latest important signal came on the Services front. An important metric highlighted by Jerome Powell, Services price inflation excluding shelter finally showed a small tick lower on a month over month basis. This outcome will provide the Federal Reserve with comfort that current monetary policy is having the desired effect.


▪ Thursday's weekly report on US Initial Jobless Claims revealed a negative though somehow needed trend, as the number of new jobless claims surpassed levels not seen since mid-2021. This slowdown in the labor market is commonly seen as a necessary condition to continue to lower inflation and bring it closer to the target rate of 2%.


▪ The highly anticipated Senior Loan Officers Opinion Survey (SLOOS) reflected mildly tighter lending conditions. Interestingly, lending standards did not tighten as severely as one may have expected given the banking sector turmoil that started in March and was rekindled two weeks ago (the survey period did not include the past two weeks’ events). In past episodes, tighter credit conditions have taken time to develop, typically 3-4 quarters. This story is still in the early innings.


▪ The Bank of England raised interest rates by 25 basis points (bps) to 4.5%. They also upgraded their growth outlook, moving from their previous call for an economic contraction to what is now a narrow, but positive growth projection. Inflation is also projected to improve slowly, albeit from exceptionally high levels. To ensure they firmly have inflation under control, the BoE hinted another rate hike (25 bps) is a strong possibility in June.




▪ Data across major economies will be light, with mostly second tier type data on the docket for the most part.


▪ All eyes are fixed on the unfolding drama in Washington as politicians grapple with the unresolved debt ceiling issue. The failure of previous attempts to reach a resolution has heightened concerns, leading to increased sensitivity and volatility in short-term asset prices due to the growing fear of a potential US debt default. Given the high stakes involved, we are confident that the US will reach a resolution at the last minute to avert a crisis.