UK: CPI falls back to target

Inflation falls

The Bank of England left interest rates unchanged despite inflation falling to 2%. High food prices have been one of the major drivers of inflation but the cost of food is now falling and this helped the Consumer Prices Index fall back to target in May. Inflation was expected to fall so the Bank of England’s decision to keep rates on hold was widely expected. However, UK gilts made gains as markets see a greater chance of a cut at the next meeting in August.

US Treasuries also gained after disappointing retail sales cast more doubt on the strength of US consumer demand. Despite several members of the Federal Reserve warning that any rate cuts this year will be minimal, investors appear more bullish about the potential for cuts. The attitude towards rate cuts remains balanced as the Swiss National Bank cut rates for the second time in a row despite inflation remaining low. However, the Norwegian central bank warned that it will keep rates high until at least the end of the year.

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  • Europe: Some calm returns to European markets
  • Equities: Markets look for policy impact as labour set for big win
  • Europe: Markets stabilise as polls predict big loss for Macron

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. (Data sourced from Yahoo Finance, Investing.com and Office for National Statistics)

UK – no growth and cooling jobs market, but no change for rates

Interest Rate Cuts?

The UK’s economic growth from the first quarter evaporated in April as the size of the UK economy was unchanged. Growth in the services sector slowed but it was still enough to offset a drop in construction activity. The slowdown is noticeable after the relatively strong growth seen in the first quarter. There is more evidence that higher rates are having an effect on the UK’s jobs market. The unemployment rate continued rise as it ticked up again last month to stand at 4.4%. This is a steady increase from the rate of 4% in January. Average wages are still rising faster than inflation but there are other signs of hiring slowing down as the number of job vacancies has continued to decline.

The lack of growth and worsening job market means the Bank of England is still expected to cut rates this year but the timing of rate cuts is expected to be unchanged and this helped UK government bonds rise without the volatility seen in US and European markets, and the pound to appreciate against the euro.

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  • Europe: Success of far-right parties in European Elections rattles equity and bond markets
  • Rates: Federal reserve holds and signals one cut likely this year
  • Europe: Markets unsettled by snap election in France

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. (Data sourced from Yahoo Finance, Investing.com and Office for National Statistics)

 

ECB and Bank of Canada cut interest rates

Interest Rate Cuts?

This week brought the first interest rate cuts for developed economies as the inflation caused by pandemic-era shortages has slowed enough for central banks to begin easing. The shift to rate cuts in Canada and the Eurozone is significant as it shows a high level of confidence that inflation is now less of a risk and attention is turning towards economic growth.

However, the positivity in bond markets this week has more to do with hopes that the Federal Reserve may be able to cut rates after all. The market’s ability to forecast Federal Reserve rate cuts is only slightly less reliable than the Conservatives’ analysis of their own and Labour’s tax policies. It was only two weeks ago that markets were full of gloom and another rate hike was being factored in. This week optimism has returned as the US jobs markets shows some signs of cooling and markets are looking for when, not if, the US and UK will be able to join in with rate cuts of their own.

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  • Rates: Bonds rise as ECB and Bank of Canada cut rates
  • Tech: Nvidia rises again as chip makers lift global equities
  • UK: Reshuffle of FTSE 100 sees Ocado and St. James’s Place drop iut

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. (Data sourced from Trading Economics and Yahoo Finance)

Markets turn less optimistic on rate cuts

Interest Rate Cuts?

This week a general sense of pessimism returned to bond markets as the prospect of central bank rate cuts has been pushed back, again. Leading the case for higher for longer rates is Neel Kashkari, president of the Minneapolis Federal Reserve bank, who warned that several months of sustained disinflation are needed before the US Fed is able to cut. The European Central Bank signalled that a June rate cut is very much on the cards. However, rising inflation has also returned to the Eurozone and this added to the gloomy outlook.

There were some bright spots for investors. The Japanese economy continues to normalise and steady inflation and rising retail sales are providing room for the Bank of Japan to raise rates. In the UK, activity appears to be picking up in the residential property market and shop price inflation has fallen back to levels last seen 2021 – well below the Bank of England’s 2% target. Consumer confidence also ticked up again. But, with no shocks in the UK election campaign so far, signs of improvement are likely to be too small to alter the polling in the general election.

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  • Rates: Bonds fall as hopes of early US rate cuts fade
  • Equities: Several of the biggest EM economies head to the polls
  • Oil: Tension in the Middle East leads to volatility in oil markets.

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. (Data sourced from Trading Economics and Yahoo Finance)