Next week to watch (19 – 23.06.)

16.06.2023 10:27|Investment Advice Department, Conotoxia Ltd.

Investors' eyes might be turned to the UK economic data and monetary policymakers next week. As the inflation in the UK appears to be stickier than in other Western countries, it may lead to higher interest rates respectively. 

Wednesday 21.06. 06:00 GMT, UK Consumer Price Index (CPI) YoY (May)

The CPI index measures changes in the prices of consumer goods and services. It covers different types of products, such as food, fuel, transportation services, cosmetics, household goods, clothing, and many others. The purpose of the CPI index is to measure the increase or decrease in the cost of living for consumers. As the CPI index rises, consumers' purchasing costs increase, affecting their money's purchasing power. The CPI index is used to monitor inflation or the overall rise in prices in the economy. It allows us to assess whether prices are rising too fast or too slowly and to determine what economic policy measures should be taken to offset the adverse effects of inflation.

In April 2023, year-on-year consumer price inflation in the UK fell to 8.7%, its lowest level since March 2022. A significant slowdown in electricity and gas prices was the main driver of this fall. However, despite this decline, the inflation rate was higher than market expectations of 8.2% and remained well above the Bank of England's target of 2.0%. Meanwhile, the core CPI, which excludes food and energy, rose sharply to 6.8%, its highest level since March 1992 and above the forecast rate of 6.2%. The preliminary CPI data for May are likely to be closely watched by both investors and the Bank of England ahead of the interest rate decision. 

Source: Tradingeconomics.com

On the one hand, if the reading is higher than expected, it means that inflation is higher, which may favour a fall in the British pound value. Meanwhile, it is also a stimulus for the Bank of England to raise interest rates and reduce the money supply causing an increase in the British pound. On the other hand, if the reading is lower than expected, it may give the BoE an argument to stop its policy of raising interest rates.

Impact: GBP, FTSE indices

Thursday 22.06. 11:00 GMT, UK Interest Rate Decision 

The interest rate decision is taken each month by the Monetary Policy Committee. The Committee votes by secret ballot, and the decision is published after the meeting. Traders in the financial markets follow interest rate decisions closely because changes in interest rates affect the value of a country's currency. Generally, when interest rates rise, the value of the currency rises, and when interest rates fall, the value of the currency can fall. Interest rates also affect the economy. High interest rates can fight inflation but at the cost of limiting GDP growth. Low interest rates could encourage borrowing and investment, which could contribute to GDP growth, but at the same time, may increase the risk of inflation. The impact of interest rates on the economy and the currency's value makes them one of the most important tools of monetary policy.

The UK interest rate was set at 4.5% (an increase of 25 basis points) in the last meeting in May. Although the inflation in the UK has finally dropped below the 10% mark, it was reported higher than expected in April (8.7% versus 8.2%) and is still considerably higher than the 2% target. Policymakers have warned that the base interest rate may need to be increased, possibly reaching even 5.5% by the end of this year, implying a 100-basis point increase from the current level. 

Source: Tradingeconomics.com

A higher-than-expected rate may be bullish for the GBP and bearish for the stock market, while a lower-than-expected rate may be bearish for the GBP and bullish for the stock market.

Impact: GBP, FTSE indices

Friday 23.06. 07:30 GMT, Germany Manufacturing Purchasing Managers Index (PMI) (June preliminary data)

The German Purchasing Managers' Index provides insight into the manufacturing industry's activity level as reported by purchasing managers. This measure provides an understanding of the state of the German construction industry, as it is assumed that purchasing managers have access to first-hand data on the performance of their companies. A reading above 50 indicates expansion, while a reading below 50 indicates contraction. 

The last time the German manufacturing PMI was above 50 was in June 2022, indicating that since then, the German manufacturing industry has been contracting. The May 2023 final reading came out at 43.2, which was better than the preliminary data (42.9) but worse than initially expected (45.0). The downward trend since July 2021 has continued in May and has the potential to lower further in June to a preliminary estimate of 43.00. 

Output in the manufacturing sector contracted for the first time in four months, mainly due to a widespread fall in demand. Factors contributing to this decline include customers' de-stocking initiatives, reduced investment enthusiasm, an uncertain future outlook, and clients facing budgetary constraints. New orders witnessed the most significant decline in six months, with export orders experiencing the fastest decrease since October. Additionally, stocks of purchases were notably reduced, reflecting both lower production demands and an emphasis on improving supply reliability and cash flow management.

Source: Tradingeconomics.com

A higher-than-expected reading may be bullish for the EUR and the stock market, while a lower-than-expected rate may be bearish for the EUR and the stock market.

Impact: EUR, DAX

Stocks to watch

Accenture (ACN) announcing its earnings results for the quarter ending on 05/2023. Forecasted EPS: 3.01. Positive earnings surprise in 9 out of the last 10 reports. Time: Thursday, June 22, before the market opens.

FactSet Research (FDS) announcing its earnings results for the quarter ending on 05/2023. Forecasted EPS: 3.6. Positive earnings surprise in 7 out of the last 10 reports. Time: Thursday, June 22, before the market opens.

 

Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73,18% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Santa Zvaigzne-Sproģe, CFA

Santa Zvaigzne-Sproģe, CFA

Head of Investment Advice Department

A certified financial analyst with a broad experience in financial markets obtained working as a broker and securities specialist in various financial institutions across the Baltics.

In addition to obtaining the prestigious CFA license from CFA Institute and Advanced Certificate from CySEC in 2022 as well as Investment Advisor’s license from Baltic Financial Advisor’s Association in 2019, Santa holds MBA from Swiss Business School in Switzerland and master’s degree in finance from BA School of Business and Finance in Latvia.


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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.