It was a busy week for data reports, with key releases including UK inflation figures, as well as US inflation and retail sales data. Starting with the UK, the Consumer Price Index (CPI) for June rose to 3.6%—the highest level in over 19 months.
Since inflation fell to 1.7% last September, it has been steadily rising in the UK. In June, inflation exceeded market expectations, climbing to 3.6%, while core inflation (excludes food and energy) rose to 3.7%. Price increases were broad-based, with notable rises in fuel, food, and transport costs, particularly train fares. This upward trend in inflation is becoming an increasing concern for the Bank of England (BoE), especially as it now surpasses inflation levels in the EU and US. The EU, who led the way with a significant rate cutting cycle, have seemingly tamed inflation with the latest reading in line with its 2% target.
Later in the week UK wage growth and unemployment figures were released. Wage growth (excluding bonuses) slowed from 5.3% to 5.0%, while the unemployment rate for May rose to 4.7%. These indicators suggest that the labour market is beginning to soften. As a result, the Bank of England (BoE) may consider a 25-bps (0.25%) rate cut at its August meeting. Governor Andrew Bailey commented this week that the weakening labour market, combined with stagnating economic growth, could provide the BoE with an opportunity to implement its first rate cut since February.
Chancellor Rachel Reeves remains in office after a challenging few weeks, during which she unveiled a new package of measures dubbed the ‘Leeds Reforms.’ Among the initiatives is a government-backed mortgage scheme aimed at encouraging lenders to take on more risk, and a push to channel savings and pensions into equities. These measures are designed to stimulate growth across the UK economy. The Chancellor expressed confidence that the reforms will have a ‘ripple effect’ across sectors, improving returns on savings and putting more money into the pockets of working people.
The proposed acquisition of Japan’s Seven & I Holdings, the parent company of the popular store 7-Eleven, by Canada’s Alimentation Couche-Tard has collapsed. Valued at $46 billion, it would have been the largest buyout in Japanese history. However, Couche-Tard accused Seven & I of failing to engage constructively in negotiations. The deal was widely seen as a litmus test for Japan’s openness to foreign takeovers, and its failure has raised doubts. Shares of Seven & I have dropped 13% over the week, falling to 1,933 yen, well below Couche-Tard’s offer of 2,600 yen per share.
Turning to the US, Consumer Price Index (CPI) data for June showed inflation rising to 2.7%, marking a reacceleration to levels last seen at the beginning of the year. This uptick is viewed as the first sign of tariffs beginning to filter through to consumer prices, with notable increases in the cost of appliances (+1.9%), toys (+1.8%), and sporting goods (+1.4%). While the Federal Reserve is set to meet later this month, markets anticipate that a rate cut is more likely at the September meeting. There is growing expectation that when the Fed does move, it may opt for a larger 50 basis point (0.5%) cut to regain momentum. Fed Governor Christopher Waller expressed support this week for beginning rate cuts as early as the upcoming meeting, though he is widely expected to be outvoted.
Following May’s disappointing decline in US retail sales of -0.9%, June saw a welcome rebound, with sales rising by 0.6%. This exceeded the consensus forecast of a modest 0.1% increase. However, part of the rise is attributed to tariff-driven price increases rather than higher sales volumes. For instance, auto dealerships led the gains, with receipts up 1.2% despite reporting a drop in unit sales. The recovery was evident across several sectors, as consumers initially responded to rising prices by drawing on credit and savings to maintain their standard of living.
We are now into earnings season, and Taiwan Semiconductor Manufacturing Co (TSMC), a global leader in AI chip production, posted record quarterly profits on Thursday. From April to June, net profit reached $13.5 billion, marking a 60% year-on-year increase. The company also expressed optimism for a strong third quarter, as it continues to supply Nvidia who have been given the thumbs up to resume chip sales in the US. TSMC shares are up nearly 9% since the start of the year.
Sterling has weakened over recent weeks against the US Dollar, falling from 1.37 to around 1.34. Signs of a slowing economy and the potential for increased rate cuts have likely driven the marginal weakness. The UK large cap index, which derives approximately 75% of its revenues from overseas responded favourably to the currency moves, breaking through 9,000 for the first time in history.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.