Weekly Market Update- Week Ending 28/07/2023

It was a positive week for equity markets. There were no surprises from the Federal Reserve (Fed) meeting and a raft of broadly encouraging corporate results supported investor sentiment.

On Wednesday, the Fed raised its benchmark interest rate by 0.25%, bringing it to a target range of 5.25% – 5.5%, its highest level in 22 years. Having paused at the previous meeting, the committee felt it necessary to resume one of the steepest hiking cycles in history, following strong economic data. The increase was widely forecast by investors, and the interest really focused on what would be guided in the press conference that followed.

At the conference, Fed Chairman Jerome Powell refrained from confirming whether rates would go up again in the next meeting scheduled for September. He indicated that it was possible for rates to increase if economic data supported it, but it was also conceivable for the Fed to maintain the current rate, depending on careful assessments made meeting by meeting. In a statement from the Federal Reserve Open Market Committee, they commented that inflation remained at elevated levels, job gains had been robust in recent months, and the overall economic activity was expanding at a moderate pace.

Earnings season picked up the pace this week with a number of the technology giants reporting. In general, results have beaten expectations. This has provided support for the sector that has already enjoyed a strong start to the year as excitement around the potential future earnings from AI continues to grow.

Closer to home, both Unilever and Centrica faced accusations of profiteering from the cost of living crisis when they released bumper profits. Unilever saw sales growth of 9.1% for the first six months of the year, largely as a result of increasing prices without seeing a corresponding fall in demand. The company raised its forecast for revenue growth in the period ahead, and the market cheered the news with the shares gaining some 5% on the day. Centrica, the owner of the UK’s biggest energy supplier, British Gas, reported record profits of almost £1 billion in the first half of the year. The company defended the growth, insisting it was mainly due to one-off factors linked to the operation of Ofgem’s price cap.

John Naylor, Chartered FCSI – Head of Investment Committee