Macroeconomics to be Friday’s focus, with UK GDP growth and US CPI inflation numbers on tap

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The main focus on Friday will be macro factors, with the release of the UK gross domestic product (GDP) monthly growth figures for July, and the August US CPI inflation numbers.

The British government was relatively slow to lockdown the economy so the true impact of the coronavirus (COVID-19) pandemic wasn’t seen until April, the first full month of the lockdown, when the economy contracted by 20% – the largest negative reading on record.

Since then, things have started to improve, as sections of the economy have reopened. The May, and June monthly readings were 1.8% and 8.7% respectively, but, David Madden, market analyst at CMC Markets UK, says investors should keep in mind that the economy was coming from low bases. Roughly speaking, economic output is 17% below the pre-pandemic level.

July saw the re-opening of pubs, restaurants, hairdressers and barbers, so the reading should reflect a sizeable rise in economic activity.

Approximately 80% of UK economic output comes from the services sector and the services PMI report for July was 60.1 – its fastest rate of expansion in years, but once again, it was coming from a low base.

The property market has been upbeat recently too. According to Nationwide, annual house prices increased by 1.6% in July, and Halifax said there was a 3.8% increase on a yearly basis.

US inflation on the rise

The July reading for US CPI inflation caught some economists by surprise coming in at 1%, a sizeable increase on the 0.6% that was posted in June, and above the consensus estimate of 0.8%.

The core level was impressive too as it was 1.6%, and that was a big rise on the 1.2% registered in June. The fact the core reading also jumped suggests that underlying demand is strong.

At the recent Jackson Hole Symposium, Federal Reserve chairman, Jerome Powell announced that the US central bank has changed its inflation policy to an average target of 2%, from a fixed target of 2%.

As a reaction to the pandemic, the Fed has embarked on an extremely loose monetary policy, and such a move means that higher inflation is a risk. Powell, said the Fed would be happy to allow inflation to run over 2% for ‘some time’. The time frame was left deliberately vague so they can change their policy as they go along.

Seeing as the Fed are happy for inflation to overshoot the 2% mark, it suggests they feel that higher inflation is in the pipeline, according to CMC Markets’ Madden.

Ashmore offers emerging market insights

On the corporate front, Ashmore Group PLC’s (LON:ASHM) full-year results due on Friday may be of extra interest for investors with an interest in emerging markets.

Just after its June year-end, the fund manager reported assets under management of US$83.6bn as it faced a combination of negative flows and positive market performance, down 8.9% on the prior year.

Despite the recent market rally, the FTSE 250 group said valuations across fixed income and equity markets still offer substantial upside and opportunities for further outperformance, with emerging markets in aggregate “less likely to suffer a recession as severe as that in the developed world”.

Ashmore is expected to report much stronger net revenues than the GBP314mln seen a year earlier, thanks mostly to higher management fees.

Analysts at UBS expect GBP335mln, leading to underlying profits (EBITDA) of GBP216mln and EPS of 26.7p and they said “investors will focus on any commentary the company provides with regards to the strength (or weakness) of flows since the end of June”.

Significant announcements expected on Friday, September 11:

Finals: Ashmore Group PLC (LON:ASHM), Fletcher King PLC (LON:FLK)

Economic data: UK GDP, US inflation

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