Investing & Performance | 11 July 2023

Monthly update: Sun shines on a brighter market mood

Stock markets are holding up, driven by easing US inflation and prospects of an uneventful economic slowdown. 


Despite mixed economic data and interest rates that could remain higher for longer, there have been some positives for the US economy of late. Sentiment among consumers rose in June as US inflation eased and the government resolved the debt ceiling crisis.

Also, Americans have kept spending even against a backdrop of high inflation and interest rates. US retail sales unexpectedly rose in May, climbing 0.3% after a 0.4% gain in April, according to the Commerce Department. The US economy also defied predictions of a slowdown with strong jobs growth. The US Bureau of Labor Statistics reported employers added 339,000 new jobs in May.

The US Federal Reserve (Fed) paused its rate hiking cycle for the first time since March 2022. In the UK, however, inflation is proving far stickier, putting pressure on the Bank of England (BoE) to raise interest rates further.

Core inflation – which strips out fast-changing fuel and food prices – is still rising in the UK, whereas it’s been falling in the US since last September. As a result, markets are now assuming that the BoE needs to act more decisively and hike interest rates to 6%, although this estimate may change with the next inflation announcement, which is still expected to show a decline. 



Global equities saw positive performance in June driven by moderating US inflation and an improved outlook for the American economy. Despite weaker economic data from China and Germany, markets concentrated on the US, which led returns. Alongside the technology sector, other economic-sensitive sectors also joined the rally in June, such as consumer discretionary and industrials.

Fears over inflation and rising interest rates have hit UK government bonds – sending yields soaring to their highest level since 2008 (as yields rise, prices fall). As the outlook for the UK remains challenging, our exposure to UK government bonds remains minimal, representing 1.7% of the bonds in a typical sterling balanced portfolio and 3.1% in a typical defensive portfolio.

Sven Balzer, Head of Investment Strategy, Coutts, said: “While we want to respect the message of equity markets and their momentum, we’re keeping an eye on our macro indicators that remain cautious and signal that economic realities will set in at some point in the coming months.  

“With this mixed picture in mind, our portfolios are conservatively positioned with a small underweight to equities for now, but we are ready to act on opportunities as they arise.”

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs. 



Despite elevated inflation and soaring interest rates, US businesses and consumers have proved to be relatively resilient in the first half of the year. Wages are still rising and consumers are still spending. The labour market has remained strong and unemployment is holding at its lowest rate for more than half a century. So far, companies have been able to maintain their high profit margins, allowing them to keep people employed. Companies are also hoarding jobs given the difficulties to hire staff after the end of the covid pandemic.

It’s too early to write off a US recession. It could be brought on by the rapid rise of interest rates which has caused the yield-curve to invert (short-term yields are greater than long-term yields), the slowdown in the manufacturing sector and drop in profits outlook as slowing sales growth mixes with rising labour costs. The market is well aware of these headwinds but so far remains focused on falling inflation and the prospects of a swift recovery.

While Britain hasn’t fared as well as the US, it managed to avoid a recession when a rebound in consumer spending and fewer strikes helped drive growth. Unemployment remains near to all-time lows and wage growth has picked up by more than expected. While this sounds positive, it has contributed to inflationary pressures for the BoE.

Meanwhile, the eurozone is seeing a decline in economic momentum because the Chinese slowdown has hit Germany – Europe’s biggest economy – and its impact is now rippling through to other countries like France and Italy. 


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