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25 July 2022

Market Round-Up

Ukraine and Russia are making progress on grain talks on the passage of an estimated 20m tonnes of crops trapped by the blockade of the country’s ports in the wake of the invasion. The UN-backed talks aim to avert a global food crisis by setting up a joint coordination centre in Istanbul, Turkey, which is located on the Bosporus Strait, a key shipping route that connects the Black Sea to the Mediterranean. However, the EU chief diplomat has said he hoped that the agreement would include the unblocking of multiple key Ukrainian ports. Russia and Ukraine are estimated to supply almost a third of the world’s global wheat exports, and the current blockade of the Black Sea has hit Ukraine’s grain exports, pushing up food prices and leaving some poorer countries in the middle east and Africa struggling to secure wheat. The lifting of restrictions will aim to ease the growing food cost inflation caused by supply constraints on the industry and can also ensure that crops are not wasted with the upcoming summer harvest.
 
Oil prices have fallen below US$95 for the first time since Russia’s invasion, over fears of an impending global recession gripping commodity markets. The prospect of the US Federal Reserve stifling growth with aggressive interest rate rises has also slowed the surging price of main commodities that have helped drive the high levels of inflation seen this year. Copper and iron have fallen by about a third since their spring peak. On the supply side, lower commodity prices will lead to a decline in the cost of production across a wide range of energy-intensive goods, with savings passed on to consumers, indirectly reducing inflation. The fall in oil prices will have a direct impact on global fuel prices with the prices of petroleum, which has risen for consumers to record highs this month, falling in the wholesale market by 20% last week. This fall in price will reduce the cost of living with transport costs falling, however, prices remain elevated, and consumers are likely to continue to feel the pinch.
 
UK inflation rose to a 40-year high of 9.4% in June, the highest in the G7 economies. The Office for National Statistics recorded the largest petrol price rise since records began in 1990, with food prices also rising 9.8%, the highest since 2009. The peak in inflation is expected following further energy bill rises in October, even following the government's support package of a £400 discount on utility bills. However, the increasingly concentrated price rises experienced in the food, energy, and fuel markets suggest that inflation is perhaps no longer spreading through the economy. This portrays that following the decline of external pressures on these markets, inflation levels could remain on a downward path towards the 2% target. The Bank of England is predicted to announce historic tightening to counter rising inflation with the increase of interest rates by half a percentage point, which would be the largest since 1995. This increase would have large negative implications for the cost of borrowing, with increases heavily affecting the property market, will restrict business growth strategies, place pressure on small business survival and will reduce disposable income for consumers. The rises in interest rates will reduce inflation and improve stabilisation within the economy, however, it will slow down the financial recovery from COVID-19, particularly given the current material and employment shortages experienced in the UK.
 
Last Tuesday, temperatures reached 40C in the UK for the first time in history, comfortably surpassing the previous record of 38.7C set just three years ago. The health security agency issued an unprecedented heat health warning of level 4, with large disruptions to health, transport, food, water, energy supplies and the economy. The heatwave has brought a reality of warnings and a shift of focus towards the dangers of climate change, highlighting to the future leader of the country the importance of accelerating the government’s pledge to reach net zero greenhouse emissions by 2050.
 
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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