Tech takes a knock as value bounces back

After yesterday’s better-than-expected inflation report, the market is now pricing in the near certainty of a US rate cut in September. However, although Mr Powell does not entirely seem to acknowledge this fact in his testimony this week entirely, the reality is inflation in the US has been down significantly in less than two years, real rates have risen dramatically, and deflation is apparent in many sectors, making the case for a cut a strong one. How did stock markets react to yesterday’s news? Technology shares took a knock, and real estate was the best-performing sector. Value, which has been underperforming the tech sector for so long, had a much better day. I would imagine some steeping of the US yield curve in the coming weeks and possibly some further weakness in the dollar. Now that the election is over, the next question is whether the UK market will start pricing in the same way as the Bank of England.

Yesterday, the UK economy received more good news. The Office for National Statistics recorded that the economy grew by 0.4% in May, exceeding expectations of 0.2%. According to Liz  Mckeown, the ONS Director of economic statistics, “Many retailers and wholesalers had a good month, with both bouncing back from a weak April. Construction grew at its fastest rate almost a year after recent weakness, with housebuilding and infrastructure projects boosting the industry.” Rachael Reeves and her team are in an enviable position, in the short term at least, able to bask in any positive economic news while blaming any unpopular decisions she may make as a result of righting the wrongs of the previous tenant of No11.

Today will be another eventful day of data-watching. Reporting season starts in earnest, with several of the world’s largest financial institutions announcing earnings in the coming days. Today, we have JP Morgan earnings out at lunchtime, and as usual, we will get Mr Dimon’s musings on the global economy. However, he has not always been that good at using the crystal ball he has at his disposal. We also get the Producer Price Index, the Michigan Consumer Sentiment, and 5-year inflation expectations. US consumer sentiment has been on a downward trend for several months.

As Jimmy Anderson takes the last of his many wickets for England, it is another fun-packed weekend of sport, culminating in the final of the Euros; although Spain is likely to be the favourites, I feel we may do it. For those looking for holiday reading, Giles Milton’s Paradise Lost, The Last Days of Smyrna is worth a go.