Falling UK inflation opens the way for rate cuts before USA

UK CPI inflation slowed to 3.2% in March due to falling food prices and lower energy costs. This is down from 3.4% in February. Core inflation (excluding volatile food and energy prices) also fell, but inflation within the services sector remains high. The reduction in the price cap for domestic energy bills is expected to help inflation return to target in the short term, however, the Bank of England remains concerned about the potential for inflation to pick up again later this year, partly due to rising wages.

Wages continue to rise faster than inflation, as average wages excluding bonuses are up 6% compared to last year. Job vacancies remain higher than usual, but the unemployment rate and the number of economically inactive people increased. Meanwhile, the UK’s listed recruitment companies have reported a drop in revenues and profits as companies become more cautious about hiring new staff. The weaker outlook allowed Bank of England governor Andrew Bailey to raise the prospect of the UK cutting rates before the US.

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• USA: Strength if the USA economy causes markets to review expectations for rate cute
• Equities: Volatile markets help boost Wall Street bank profits
• USA: Consumer spending forces markets to reconsider rate cuts

(*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 FE Analytics, and Bloomberg Finance LP.)

Middle East tension and rising demand push up oil price

The price of crude oil has increased around 10% in recent weeks as fears that conflict in the Middle East may broaden and begin to affect supply. In 2023 oil peaked around $92 a barrel for Brent crude. It has been trading around $80 for the last six months but appreciated to $90 earlier this month. Israel’s ongoing invasion of Gaza is raising tension in the region and if Iran gets directly involved this could significantly disrupt oil supplies. In addition, signs that Chinese industrial production is increasing means greater demand when oil supply is being kept tight by the OPEC countries.

Separately, Shell has raised the possibility of moving its stock market listing to the US as it views the higher valuations of its US-based rivals. The current CEO and his immediate predecessor both said this week that a move to the US may be in the best interest of the company as it would make financing cheaper, increase the share price and it would face what the company sees as a more positive attitude from investors.

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• USA: Government bond markets rattles by another strong inflation reading in the USA
• USA: Rising inflation causes Government bond sell off
• Equities: Lower inflation expected to boost retailer’s profits

(*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 FE Analytics, and Bloomberg Finance LP.)

UK Mortgage Market perking up

The mortgage market delivered more good news as approvals rose more than expected in February, hitting a 17-month high. This follows the trend in the housing market were mortgage rates have declined from the summer highs of last year. According to the Bank of England, UK mortgage approvals reached their highest levels since September 2022. UK shop price inflation also fell below 2% in March. This is the first time it has hit that threshold since December 2021. According to the British Retail Consortium, shop price inflation eased to 1.3% in March versus 2.5% in February.

This will be welcome news to policymakers as they consider rate cuts later this year. It will also be a relief to households and businesses that have tried to keep up with the cost of living crisis. For context, food inflation was 15% a year ago. The OBR has forecast that inflation will fall below 2% over the coming months so gilts could rally even further still.

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• USA: Central Banks consider timing of rate cuts with release of new data
• USA: Jobs growth shows no sign of letting up just yet.
• Tech: Can Tesla stage a comeback

(*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 FE Analytics, and Bloomberg Finance LP.)

Central Banks signal possible rate cuts in Spring

This week falling inflation and positive updates from central banks helped generate an optimistic mood. Equities have done well so far this year, but bonds have struggled due to the tension between central banks and markets’ assumptions about rate cuts. Investors have been forced to readjust as inflation remained sticky and central banks appeared reluctant to move too early. However, positive inflation updates and signs that jobs markets are cooling, plus signs that apparently insatiable US consumer demand is slowing have caused a big shift in central bank messaging.

Members of the ECB have been noticeably more upbeat about rate cuts, while Bank of England governor Andrew Bailey talked of the need to be forward looking, and said inflation doesn’t need to be back to target before acting. In the US, Jerome Powell was similarly optimistic about progress on inflation and investors and central banks appear to be settling on late spring as the date for the first rate cuts. There is still plenty of scope for disappointment but markets are enjoying the outbreak of positivity as bonds have been able to join the rally.

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• Rates: USA and UK leave rates unchanged for now
• Rates: Japan and Switzerland address different inflation issues
• Retail: Signs that USA consumer demand is starting to cool

(*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 FE Analytics, and Bloomberg Finance LP.)

UK – GDP rises in January, BUT….

The jobs market in the UK remains robust but there are more signs of a slowdown. Unemployment increased slightly to 3.9% and the number of people who are economically inactive increased again. Wage inflation also continues to slow and recruitment firm Reed reports that job vacancies have fallen to the lowest in three years.

The UK economy returned to growth in January after entering recession in the second half of 2023. Monthly GDP increased by 0.2%, mainly due to a pick-up in services activity. However, growth remains weak. After adjusting for inflation, GDP declined by 0.1% over the three months to end of January. Bank of England governor Andrew Bailey said the UK is close to or at full employment but says the Bank of England does not need to see any deterioration in employment before cutting rates as the risks of wage growth fuelling further bouts of inflation has receded. The data means the outlook for interest rate cuts remains unchanged ahead of next week’s interest rate meeting as sterling fell slightly.

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• US: Government Bonds fall as markets push back their expectations for Fed rate cuts.
• US: Rising inflation and string spending weigh heavily on US Government Bonds
• Tech: Tesla appears out of step with other US Tech giants

(*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 FE Analytics, and Bloomberg Finance LP.)

Chancellor takes final chance for pre-election giveaway

This week has been all about politics. The US presidential primary season ended as Nikki Haley withdrew from the Republican contest. With no official challenger to Joe Biden among the Democrats, it is now a two horse race between Biden and Donald Trump to the election in November. Meanwhile, China’s biggest annual political event, the National People’s Congress, also concluded this week. The congress brought confirmation that China’s target for annual GDP growth will remain at 5%. However, there were no new policies designed to meet the ambitious growth target.

In the UK, Jeremy Hunt used the budget for a few pre-election sweeteners. Under pressure from backbenchers to come up with a tax cut or two, the chancellor opted for another cut to national insurance. Not only can be it be presented as pro-growth and rewarding work, it is also cheaper than cutting income tax. The government will be relieved that the economic outlook has improved slightly but all in all it was a low key budget. There was nothing to move markets and the government will need more than a small NI cut or 0.1% increase in GDP to turn its fortunes around.

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• UK: Markets steady as Government increases borrowing to fund tax cuts
• Rates: ECB on hold as US Fed remains cool on timing of first cuts
• Equities: Big Tech facing more regulatory headwinds

(*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 FE Analytics, and Bloomberg Finance LP.)

Inflation in US slows, but some spending unaffected by high rates

This week investors breathed a sigh of relief as US core inflation resumed its downward trend. The Core Personal Consumption Expenditure Price Index is a significant measure of US inflation as it is closely watched by the Federal Reserve. After appearing stubbornly high at the previous two readings, the small move down this month has been welcomed by those concerned that central bank rate cuts were in danger of being delayed. We’ve also seen headline CPI inflation in Europe decline due to disinflation in France and Germany.

However, there are signs that controlling inflation fully may be difficult. US Core PCE is down over one year, but the monthly reading picked up. Meanwhile goods prices are falling but services inflation is still rising strongly on both sides of the Atlantic. In the UK, for example, Halfords is feeling the effect of less spending on goods while IAG is the latest airline to cash-in on the post-Covid travel boom. As pointed out by Bank of England member Catherine Mann, a lot of inflationary spending is coming from wealthy consumers who are not affected by higher borrowing costs.

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• US: Markets reassured as core inflation eases
• UK: Poor earnings updates drag on the wider market
• UK: LSE looks to a brighter future as Shein eyes London IPO

(*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 FE Analytics, and Bloomberg Finance LP.)

Investors await the start of the rate cutting cycle

This week, there has been an increase in attention towards Chancellor Jeremy Hunt, as he is expected to announce his Spring Budget in two weeks’ time. In the previous Autumn budget, the main focus was on businesses. However, with the general election approaching, it is anticipated that Hunt will prioritize individuals in an effort to boost his party’s political appeal.

Reports this week have suggested Hunt is drawing up plans for a new scheme that would allow first-time buyers to purchase a home with only a 1% deposit, with the government acting as a loan backer. The scheme is part of the Conservative Party’s efforts to appeal to younger voters and homeowners, who have been increasingly priced out of the housing market. The party faces competition from Labour, which has promised to be “the party of home ownership.”

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• Data: Poor data confuses the policy path
• UK: Elevated borrowing costs support record profits
• China: Chinese consumers spend as Nikkei 225 eclipses all-tome high

(*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 FE Analytics, and Bloomberg Finance LP.)

Technical recession confirmed for UK

This week we got what should have been monumental news that the UK is officially in recession. The specific definition being used for this headline isn’t particularly useful however. Most people would associate a recession with rising unemployment, something we have yet to see. So far belt tightening in the retail sector is dragging down growth figures thanks to poor Christmas sales but if it keeps up, we can expect job losses eventually. That the last six months haven’t exactly been great for the UK economy should come as no surprise to anyone.

Elsewhere the mood is likely more upbeat over at the Bank of England. A recession is the best known cure for inflation and they’ve been trying to cause one ever since they started jacking up interest rates. How bad things need to get and for how long before they’re satisfied will be questions they’ll need to answer. In an election year this could be a boon to Labour who can now blame the government for causing a recession, but there is every chance the figures could be revised up in a few months and the Conservatives will take the credit for a recovery so it’s probably a wash.

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• Inflation: Markets choppy as UK and US send different signals
• UK: Enters recession as wage growth remains strong
• Equities: Big brands warn that consumers are more cautious

(*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 FE Analytics, and Bloomberg Finance LP.)

UK economy remains weak

The UK is expected to have fallen into recession in the final quarter of 2023. GDP fell by 0.1% in the third quarter of 2023 and The National Institute of Economic and Social Research expects to see GDP contract for the second successive quarter when official figures are released next week. Meanwhile consumer spending continues to slow. Sales in January increased 1.4% compared to last year, but this is lower than the 1.9% increase in December and the value of retail sales has been below inflation for some time. The Recruitment and Employment Federation said hiring has slowed and starting salaries have fallen below the long-term average.

Not all news this week was gloomy as the UK’s services sector continues to expand and the outlook for the housing market has improved. The number of mortgage borrowers has increased as borrowing rates fall. Estate agents report more buyers and sales and the monthly surveys from Nationwide and Halifax show average house prices are rising.

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• Markets: Reassessing the timing of rate cuts as China takes steps to end the sell-off
• US: Equities gain but investors more cautious on bonds
• China: Equities rally, but persistent deflation is a problem

(*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 FE Analytics, and Bloomberg Finance LP.)