It’s going to be a bumpy ride

It’s been another eventful week and one that serves to remind us that while there may be more sources of optimism this year, compared with last, it’s going to be a very bumpy ride.

There’s no doubt that there’s been plenty more cause for optimism so far this year, especially compared with what we became accustomed to in 2022. The US could achieve the soft landing that many have doubted is possible, China could bounce back strongly from the dropping of Covid restrictions and the euro area may avoid a recession.

That’s not a bad shift in expectations at all. But just as quickly as they turned more favourable, they could switch again. Economic data from the US this week has been far less promising. Rather than focus on disinflation and the labour market, it’s been other economic indicators and earnings that have taken the spotlight and it hasn’t been great.

What’s more, it seems we’re seeing more regular warnings of imminent layoffs, the latest coming from Alphabet which plans to cut 12,000 staff globally. For so long companies have been reluctant to lay staff off following the post-pandemic re-hiring struggles but the tide appears to be turning and it could accelerate from here, at which point the economic data may become much more downbeat.

UK retail sales slump again

It’s been a busy week for UK economic data and many may be just as confused about the outlook as they were before. Data has previously indicated that the country may have managed to avoid a recession in the fourth quarter but at the same time, retail sales strongly suggest that households are feeling the strain which begs the question, did the World Cup just delay the inevitable?

Meanwhile, labour market figures remain strong, so much so that wages are continuing to accelerate higher while still failing to keep up with inflation. While that explains why households are spending less, it doesn’t alleviate fears within the BoE that getting inflation sustainably back to 2% could necessitate inflicting more pain on households. An unenviable dilemma, but policymakers are in agreement that inflation must take priority. And when that is still above 10%, it’s clear that means the rate hikes will keep coming.

Volatility is back

It’s been a very choppy week for bitcoin after the cryptocurrency surged back to life, buoyed by a much-improved risk environment. A period of relative calm in the crypto space has allowed for such a rebound, time clearly being a great healer and all that. Still, as we’ve seen in crypto, the volatility works both ways and what we’ve seen this past week suggests there’s plenty more to come.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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