A Pause For Breath

By Aoifinn Devitt, CFP® – Chief Investment Officer

While the US Fed paused for breath in this week’s rate decision, markets were a little more flustered.  With a focus alternately on whether Jerome Powell was definitely committing to raising rates again in July or was keeping the door open to “wait and see”, markets treaded water as they sought to digest the news. Inflation was a more subdued 4% year on year, which was below expectations of 4.1% but still some way above the Fed target of 2%.  Some commentators griped that service inflation as well as food price inflation was not coming to heel as quickly as was hoped.

The much-touted recession still seems to be elusive, for now, although if we look around the world the picture is a bit more mixed – with Germany technically now in recession and Europe remaining committed to rate hikes to tackle inflation that is “too high for too long”.

Continuing our trip around the world, China just cut rates by 25 bps in order to boost an economy that has been flagging below expectations since their post-Covid reopening, so it is clear that policy divergence is now here to stay.  We can expect to see this translate into more currency volatility and a more interesting international equity and fixed income landscape.

The chart below shows the price movement of US crude futures since the depths of the pandemic and while we spoke about V/U/L and W shaped recoveries after the pandemic we can see that the price of oil has been a near-perfect inverted V. The fall from the peak oil prices which occurred in 2022 has confounded commentators who might have expected oil to respond more to supply restrictions initiated by OPEC+ well as the ebullient consumer demand and still strong economic indicators. The fact that it has not rallied illustrates the sobriety underpinning much of the current hard data – and a disconnect we have highlighted before between relatively robust hard data and much more doom-laden soft data or sentiment. This may create the element of surprise that will keep both the Fed and investors guessing as the second half of the year opens.

Equity markets meanwhile have stayed strong, moving to 14-month highs and sparking claims of “mania” and “monster rally”. The chart below shows the extent of the movement, and it can be seen that the markets have largely stayed positive despite the fluster of recent movements.

Source: Morningstar as of 6/15/23


Although summer is here in earnest, we won’t be taking a pause.  We look forward to staying current with these updates and wish all of our readers a buoyant start to summer.


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