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02 August 2022

Market Round Up

In an attempt to dampen the soaring inflation levels within the US over the last seven months, the Federal Reserve (Fed) announced on Wednesday 27th July that it is increasing the policy interest rate by 0.75 percentage points for the second month running. The level now stands between 2.25% and 2.50%, which follows shortly after inflation hit 9.1% in June, the highest level in 40 years. Many economists are titling this interest rate increase the most aggressive cycle of monetary tightening since 1981.

The federal funds rate is projected to reach about 3.5% this year, a level that will more actively constrain economic activity. Top Officials have the view that doing too much is far more important that not doing enough in order to dampen demand and cool price levels.

The Fed is walking a very fine line; raising interest rates too fast would cause huge negative effects to economic activity, causing a rapid slowdown across the board. Further knock-on effects would also cover currency and bond markets, causing yields to rise further after strong gains already this year. Therefore, raising interest rates too quickly has a strong potential to put the US economy into a recession, even if sectors are showing strong performance indicators. But, if interest rates don’t increase enough to make a dent in inflation, consumers and businesses alike will continue to see continued rising prices and increased cost of living issues.  After monitoring the US economy last month, the Fed stated that the economy has moved from “economic activity appeared to have picked up” in June to “recent indicators of spending and production have softened” in July. The Fed is seeing economic slowdown across the economy, however, is it enough to warrant lower interest rate movement at the next Federal Open Market Committee in September or is it a sign that inflation levels have peaked and a recession is right around the corner?

So, what does a climb in interest rates mean for consumers? As a way of reining in both cost-push and demand-pull inflation, rising interest rates mean higher costs when borrowing to invest in business projects or housing renovations, for example, but it does mean you get a better return when saving money in a bank.
The UK’s largest port, Felixstowe, receives 20,000 ships a year and handles around 17.6m tonnes of cargo, necessary for keeping food on the shelves in supermarkets and the economy ticking. However, strike action threatens to shut the UK’s largest container port in August bringing further disruption to the country’s transport network as talks in the rail dispute remain deadlocked. The Unite union announced that its members at Felixstowe port had voted “overwhelmingly” for industrial action in a dispute over pay, with 92% in favour on an 81% turnout.

The Hong Kong conglomerate CK Hutchinson, which owns the port, had already made an offer of a 5% pay increase with a further £500 bonus, however, the union is arguing that this isn’t enough for its members as the proposed wage increase isn’t close enough to current inflation levels as they would like. If the union and owners don’t come to some sort of agreement any time soon, fears of a complete logistics standstill could loom over the UK economy. So, what does this mean for us as consumers and businesses? A fall in the supply of goods overnight means shortages in supermarkets, restaurants and shops. Exporting from and importing to the UK will be put on hold as a limited number of goods can come in and out via other ports, causing supply-side lags across the economy in all heavy import and export sectors. It is important to note, however, that the effect of this is entirely dependent on whether or not strikes do happen and how long they go on for.

Leeds-headquartered Asda is among three companies to be investigated by the competition watchdog (CMA), over claims of sustainability and potential greenwashing, with little to no evidence to back up its claims regarding its ‘George for Good’ range. The assessment will be made to see how environmentally friendly it really is and to decide if the claims made by Asda are misleading to customers or not.

So, what is greenwashing and why is it a concern? According to Earth.org, greenwashing is when an organisation spends more time and money on marketing themselves as being sustainable than on minimising their environmental impact. It’s a deceitful advertising method to gain favour with consumers who choose to support businesses that care about bettering the planet. This raises huge concern for the CMA and customers alike as it is misleading to portray a product as environmentally sustainable or as having a good environment impact when in reality it doesn’t have the same level of impact or benefit. In theory it takes advantage of consumers wanting to shop ethically or more sustainably.

Sarah Cardell, interim Chief Executive of the CMA, said: “People who want to ‘buy green’ should be able to do so confident that they aren’t being misled. Eco-friendly and sustainable products can play a role in tackling climate change, but only if they are genuine”.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
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