Weekly View, 15 August 2022

The CIO’s view of the week ahead.

Last week's US CPI print showed a moderation in consumer price growth in July, driven by lower energy prices. Surprisingly good news came from core inflation, which came in at 0.3% rather than the 0.5% expected. Food prices were among the biggest contributors to rising prices, whereas used car prices came down. Equities rallied, growth stocks in particular. We are neutral equities. While a cooling of inflation is necessary to see a monetary policy pivot by the Federal Reserve, it is not yet sufficient and we will be watching for what comes out of the Fed's Jackson Hole summit at the end of August. Meanwhile, President Biden's recent policy wins, including the "Chips plus" act support US industry development, raise anticipation around his plans to run for re-election in 2024.

SoftBank rattled investors last week when it announced a record USD23 bn loss for the second quarter and the sale of its USD34 bn shares in Chinese tech giant Alibaba to reenforce its balance sheet. In the week ahead, US retailers Walmart and Target will report on their Q2 earnings and we will be watching for overall retail sales figures to assess the ongoing sentiment of US consumers.

In politics, it looks increasingly likely that the right-wing Brothers of Italy will win the coming Italian elections, but would have to form a government with both Lega and Forza Italia if so. In Asia, Chinese military drills continued around Taiwan and China has announced plans to continue both sea and air patrols. This prolongs a precarious situation in an area where half of the global container fleet and 88% of the world's largest boats by tonnage pass through. Against this backdrop, President Biden's administration is reviewing the Taiwan policy act, a bipartisan Congressional attempt to overhaul US-Taiwan relations and treat the island as a strategic Non-Nato ally. Meanwhile, the US and China failed to come to an agreement on allowing US auditors to inspect the audits of Chinese companies. Five of China's largest state-owned companies announced that they will delist from US exchanges. The Chinese economy had mixed news, with exports rising more than expected, by 18%, while imports rose 2.3%, worse than expected. Weakening credit growth flags that while liquidity is available, the Chinese private sector does not yet seek it, a consequence of the country's ongoing property-sector woes, which have implications on overall activity.

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