Weekly Market Update- Week Ending 08/07/2022

It was a volatile but broadly positive week for investment markets, as investors digested all the political events in the UK, and we saw tentative supportive buying of the heavily hit technology sector in the US.

Like the Black Knight scene from Monty Python’s Holy Grail, Boris Johnson spent the early part of the week maintaining his ability to carry on fighting. The house of cards, however, started to fall as more than 50 of his ministers resigned in 48 hours, making it increasingly difficult to maintain a functioning government. As the resignation story broke, sterling rallied roughly 0.5% from a two-year low against the dollar as investors reacted positively to the news. Sterling also made gains against the euro and is trading towards the top of its two-year average.

Away from the theatre of Westminster, investors were keen to analyse the release of the latest Federal Reserve (Fed) meeting minutes for clues on the pace of the expected continued rise in interest rates. At the June meeting, the Fed felt that a rise of 0.75% was required to try to bring down soaring inflation. The minutes revealed the members proposed that “an increase of 50 or 75 basis points would likely be appropriate at the next meeting”.

Oil fell this week, with Brent trading below $100 a barrel for the first time since April. The move will likely be cheered by the public and policymakers alike. If oil continues to remain or fall further from current levels, it should help bring down the headline inflation figures and perhaps not require the central banks to pull the handbrake quite so hard by raising interest rates quickly.

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John Naylor, Chartered FCSI – Head of Investment Committee