The BOE increases interest rates to a 14-year high of 3.5%, after they announced a half-percentage point increase at the latest committee meeting. Officials were torn between balancing the risk of inflation becoming further entrenched or prevent titling the economy into a deeper recession. Jeremy Hunt acknowledged that higher interest rates deliver another blow to UK consumers, but persistently high inflation will prolong the pain to the economy. Despite the latest inflation print indicating that official figures may have peaked, evidence still suggests that inflationary pressures have not begun to fully subside with the labour market still tight and the resilience in wage growth. All of which justifies the need for a strict stance on monetary policy. Following the latest rate decision, the FTSE 100 closed the day lower, whilst Stirling slid against the Dollar.
U.S. policymakers tempered the level of their latest rate hike increasing it only by 0.5%, which now brings the benchmark rate to a 4.25% to 4.5% target range. This follows on from four consecutive 0.75% hikes that have supercharged the pace of rate hikes. Jereme Powell’s speech sapped all expectations of a dovish pivot, explaining that the Fed is not close to ending its fight against inflation. The stance on monetary policy needs to remain restrictive and for longer to return inflation back to 2%. Policymakers now project the terminal rate to reach 5.1% by the end of 2023 vs the 4.8% that had initially been speculated by investors. The forward trajectory of interest rates will continue be data dependent leaving policymakers with the flexibility to either deliver another 0.5% rate increase or downshift to 0.25%. A more hawkish tone from the Fed pushed European stocks lower and US equity futures also point to a decline.
The latest UK inflation report was a surprise on the downside with headline inflation coming in at 10.7%, down from 11.1% in October which marked a 41-year high. A more modest inflation print was driven by the decline in cost for petrol, used cars, and prices within the leisure sector. Meanwhile core inflation which excludes energy and food prices dropped to 6.3% from 6.5% in October. Whilst the latest figures suggest that inflationary pressures are beginning to ease, it still remains uncomfortably high where consumers will continue to feel the tight squeeze on their incomes. As such, despite the moderation in inflation the Bank of England is expected to deliver a 0.5% rate hike at their next meeting to prevent inflation from becoming entrenched. This would bring the base rate to 3.5%.
The latest inflation print unravelled a compelling sign that inflationary pressures are continuing to ease, with many now expecting a downshift in monetary tightening from the Fed. This was as core inflation came in lower than expected at 6% year-on-year, marking a 0.2% rise in November, the smallest monthly advance since August 2021. Headline inflation which includes food and energy also undershot expectations coming in at 7.1%. Markets reacted positively after the report was released with the NASDAQ and S&P 500 closing higher at 1.01% and 0.73% respectively, whilst US Treasuries also rallied. The boost in confidence was underscored by the expectation that rate hikes can now be eased to 0.5%, with the understanding that 0.75% rate hikes are now in rear view. Though the outlook appears more optimistic, Jereme Powell will continue to communicate that rates will remain restrictive into next year to help bring inflation back to target.
The UK Consumer Price Index surged to a 41-year high in October reaching 11.1% from a year ago, surpassing the Bank of England’s forecast of 10.9%. Higher energy bills continued to drive headline inflation, meanwhile core inflation which excludes energy and food prices remained unchanged at 6.5%. The pound notched 0.3% higher to $1.19 following the latest inflation print. Governor Andrew Bailey and policy makers have continued to echo a hawkish tone, in which they are prepared to raise rates aggressively until spiralling inflation is sapped. Wage growth has not kept up the momentum with increases in prices which is squeezing real income for UK consumers. However, both weaker growth ahead and waning supply chain disruptions could help to ease price pressures. There is evidence that input costs for businesses have begun to ease, with manufacturing costs coming down in October from levels seen in September.
The announcement this morning sees the first economic contraction since the final COVID lockdown. The UK saw a drop of 0.2% in GDP, which is thought to be the start of a drawn-out recession. The figure announced is better than expected, however, singling out September there was a large contraction of 0.6%, it reflected the extra bank holiday and period of national mourning for Queen Elizabeth II. The cost-of-living crisis is also a contributing factor, it has caused household spending and retail sales to drop within the last quarter. The economic outlook is dependent on the UK household's willingness to spend the excess savings that were built up during the pandemic.
The latest US CPI report shows that inflation reached 7.7% in October, representing the softest inflation print since the beginning of the year. Core inflation, which excludes food and energy prices also cooled retracting from their 40-year high seen in September, advancing 6.3%. The biggest decline in price gauges that helped drive the lowest inflation print this year was medical care services and used vehicles, whilst shelter costs failed to restrain core inflation increasing 0.8% last month. The overall moderation in inflation now points toward a potential peak in consumer-price growth, with many investors hoping that this is a sign for the Federal Reserve to begin ebbing away from their aggressive interest-rate hikes. Inflation still remains elevated at levels above comfort for the Fed, but a 0.5% rate hike versus 0.75% in December looks more plausible. Following the news, the S&P 500 and Nasdaq rose 3.6% and 5.2% respectively, whilst US Treasury yields and the dollar both slid
US jobs in October posted another beat with 261,000 jobs created. This number came in ahead of economist expectations of 200,000. This would normally give rise to fears that the economy was on path for higher rates as it remained strong. This time around the critical unemployment rate ticked up to 3.7% which surprised markets and prompted speculation that job losses were starting to mount. This unemployment prompted a rally in equities and a sell off in the dollar as investors speculated that the FED would halt their rate hiking cycle early.
The interest rate in the UK, now at 3%, was raised by the largest increase seen in 30 years. The move was in response to six months of the UK's year on year consumer price index (most widely used measure of inflation) being above 9%, vastly over the bank's targeted 2%. The UK market reacted negatively with the pound initially falling 2% against the US dollar. Despite both central banks raising rates 0.75% it was the signalling that followed that was bifurcated. The Federal Reserve suggested that rates would be raised further in the future than the market had priced in, whereas BoE Governor Andrew Bailey claimed he thought markets had gone too far in predicting UK rates.
The Federal Reserve has delivered their fourth jumbo rate hike by another 0.75% bringing the Fed’s funds rate to c.3.9%. This was in line with market expectations. The message from Powel was mixed and had a hawkish tilt but with a dovish heads-up to markets that there will be a moderation in prevailing rate hikes. Markets reacted favourably initially to this dovish tone but the message that the terminal interest rate will be higher than earlier projected whipsawed markets with the S&P 500 suffering its worst rout following a Fed decision this year. Whilst the path moving forward will involve smaller hikes there is some way to go until rates are tight enough to return inflation to the 2% target.
Inflation topped estimates and surged to an all-time high of 10.7% from a year ago. Meanwhile GDP slowed down to 0.2% in the third-quarter which is significantly less than the 0.8% in the second-quarter. Following this inflation print European bonds edged lower and the euro dropped 0.3% against the dollar. For the Euro-area this presents a hazardous outlook where a combination of surging inflation and a slowdown in the economy underscores an imminent probability of a recession. Increasing energy costs brought on by tensions in Ukraine continues to drive headline inflation higher and could deliver a fresh blow to consumers as we transition into the winter season. Stronger supplies of natural gas may help alleviate the pain but the trajectory of future supply and Russia’s war in Ukraine still pose a risk. Amongst these treacherous conditions controlling inflation continues to be a priority for the ECB with their latest 0.75% rate hike delivered last week.
In another bold move to combat inflation the ECB decided to hike interest rates by 0.75% raising the key deposit rate to 1.5%, the highest level in over a decade. The euro-zone are at the epicentre of the energy-price crisis and so the ECB’s latest decision to deliver a second straight three-quarter point hike underscores their commitment to control prices in the face of a probable recession. This move is more in tandem with the Federal Reserve’s rate hiking path, yet the consensus is that the ECB’s pace of rate rises should ease from here to peak at 2.5% in March 2023. However, a key challenge which continues to remain is determining an appropriate balance of monetary tightening as households grapple with surging energy bills and higher mortgage rates. On a brighter note, the majority of sectors ended the third quarter in positive territory, led by healthy earnings in European tech stocks.
UK inflation for September has come in at 10.1% against expectations of 10% for core inflation. This is up from Augusts reading of 9.9%. Much of the rise has come from consumer goods such as food and drink with sectors such as energy cooling. This has caused some further volatility in the pound and UK bond markets on fears that further rate hikes will be needed to tame inflation at the same time as UK economic numbers continue to slow.
Core inflation in the US surprised markets by remaining higher than expected in September which caused a sharp sell off in equities and bonds. The inflation number of 8.2% was higher than the 8.1% which the market was looking for. Whilst this was a small miss it remains indicative of the direction of travel for inflation and thus indicative of how aggressive central banks are going to have to get with rate hikes to control it which remains the reason why equities and bonds sold off on the news.
In face of the cost living crisis the UK economy shrank by 0.3% predominately driven by a decline in manufacturing production and consumer services. Consumer-facing services plunged 1.8% whilst manufacturing and production dropped by 1.6% and 1.8% respectively. Soaring input costs, higher interest rates and weakening demand has been the catalyst for this contraction in economic output with the economy now smaller than it was at the start of the year. What is now surfacing are the profound difficulties in consumer-facing sectors as the squeeze on real income is forcing households to adjust their spending decisions as inflation remains to be sticky. Despite the lacklustre output data, markets still expect another mega rate hike of 0.75% from the Bank of England. This will continue to be a major headwind for both businesses and consumers.
The US Federal Reserve raised interest rates in the US by another 0.75% to 3% in what was largely expected by the market. What was unexpected was the more downbeat assessment of the economic growth in the US over the coming year and how the path of interest rates was going to have to rise to meet what the FED said was a more persistent inflation problem. US stocks responded negatively on the news that rates might go higher than expected and remain there for longer as well as beginning to price in a deeper recession.
UK inflation showed signs of easing as the Consumer Prices Index (CPI) rose 9.9% from a year ago. The latest August CPI data was lower than the 10.1% in July and a haircut from the consensus of 10% which economists had been expecting. Petrol prices fell 6.8%, raw materials declined 1.2%, whilst food and clothing prices rose 1.5% and 1.1% respectively. After headline inflation easing from its highest rate in four decades UK bonds rose, with the yield on 10-year notes dropping 0.05%. As markets assess the latest macro environment the important question now being asked is whether UK inflation is nearing its peak and if monetary policy is helping to relieve inflationary pressure. However, today's news is unlikely to stop the Bank of England (BoE) from delivering further interest rate hikes. The BoE have its next meeting in September 22, in which investors are expecting a 0.5% or 0.75% hike from its current rate of 1.75%.
The US consumer price index for August came in at 8.3% year on year. Which, although a fall from the July figure of 8.5%, is above the consensus estimate 8.1%. This led to a sell-off in equity and bonds as although energy prices in the US have eased, it was the core figure (food and energy stripped out) that was the concern, rising 0.4% month on month. The persistence in this core CPI figure has again highlighted the Federal Reserve is not close to done raising rates. Many economists are predicting the US Federal Reserve will raise interest rates by three-quarters of a point next week after today's inflation report. The tech-heavy Nasdaq, a US index particularly sensitive to rate rises, was down 3.5% in the first hour of trading.
The Office for National Statistics revealed that gross domestic product (GDP) for the UK expanded 0.2% in July, following a sharp fall of 0.6% in June. Any growth in July was driven by the information and communications sector and consumer-facing services, which grew 0.6%. Industrial production and construction shrunk 0.3% and 0.8% respectively, reflecting a second consecutive fall for both sectors. The consensus was for UK growth to reach 0.3% but was curtailed by the additional day off for the Queen's jubilee. To exacerbate matters further, the Queen's recent and unfortunate passing along with the additional holiday for her funeral in September may be enough to tip the economy into recession. With that the outlook for the UK certainly appears bleaker, driven by a continued squeeze on household income and key purchasing-management data showing private-sector activity contracting in August.
Queen Elizabeth II, Britain’s longest serving monarch died yesterday after 70 years on the throne. The Queens death was announced by Buckingham palace yesterday at 6.30pm. The throne has been immediately succeeded by then Prince Charles and now King Charles III. TAM’s thoughts and prayers go out to the family and the nation at this time of mourning.
A Liz Truss victory has been anticipated in the weeks leading up to the election date, but now is the time we'll observe how the new PM will tackle the many headwinds the UK faces. In the crosshairs is surging UK inflation, a risk of recession and the real income squeeze brought on by soaring energy prices. Therefore, PM Truss has pledged to freeze energy bills and slash taxes to help revive the UK economy, however these promises have been criticised as inflationary. The reaction in markets was minimal. At the time of today's announcement, the pound sterling briefly fell below $1.15 at $1.1498, the lowest since the 2016 Brexit vote. From open the FTSE 100 index was down 0.7% and the FTSE 250 fell 1.1%. Markets have been underperforming with August showing a slew of selloffs across the pound, corporate bonds, and UK government bonds. It's clear the UK is in a precarious position and now all eyes are on Liz Truss, her actions as PM, and how markets react.
US nonfarm payrolls increased to 315,000 in August exceeding consensus by economists, though this is a decrease from the 526,000 payrolls in July. Unemployment also unexpectedly rose to 3.7% marking a six-month high as the participation in the labour force climbed. Following the jobs data revealing signs of easing in what is still a tight labour market, US stocks advanced, two-year treasury yields declined, whilst the dollar weakened slightly. A combination of people returning to the labour market and slightly slower wage growth is good news for markets. The latest data helps in not reviving Fed hawks as they discuss the next rate decisions but does underscore their belief that the economy can withstand further tightening to control inflation.
The UK registered inflation at 10.1% in July which is the first time in 40 years the UK has seen inflation at this level. Most of this rise in inflation seems to have come from a rise in food costs which poses its own challenges to bringing this number down which is harder to do than energy prices. Economists expected inflation to peak at 9.8% which was below the actual number and leaves a very tricky path for the Bank of England to keep raising rates to control inflation yet tightening financial conditions as we move into a recession.
The UK economy shrank by 0.6 per cent in June, pushing gross domestic product (GDP), the main measure of economic output, into a 0.1 per cent contraction in the second quarter. One key explanation is the extra jubilee bank holiday impacting the country's output while rising inflation eroded spending power. The ONS stated that consumption fell by 0.2% in the quarter, but there have been indications that the celebrations for the jubilee had little impact on the quarterly number with KPMG suggesting test and trace having a more significant effect on the decline of output in Q2. This is a temporary factor but this provides little respite moving forward with signs of weakness across the economy. Looking forward, the bank of England predicts the UK Economy will enter a recession heading into the last three months of this year and throughout 2023.
The US inflation figure fell to 8.5% year on year for July. Key drivers of the high inflation figures are food and energy costs, these goods are highly volatile within the market so this slowdown may be temporary. The previous inflation movement has placed a continuous strain on families and services giving the US a negative social and health impact for the past few months. Slight relief from this negative impact on US households came as gas prices fell, by $1 per gallon compared to the previous month, easing pressures on the US economy. The reduction of inflation could be down to the Fed's behaviour regarding interest rate decisions, their aggressive increase of the US rates aims to curb inflation rapidly, potentially at the cost of a recession. The inflation print sparked a strong rally in the growth stocks which have struggled this year, with investors feeling much more positive on the outlook.
Jobs in the US economy surged another 528,000 created against a predicted 250,000 from economists. US bonds sold off on the news as investors re calibrated where the federal reserve was prepared to raise interest rates to in order to control inflation. Other moves were a spike in the dollar and a sell off in US Equities as these are both affected by the perception of an increase in interest rates.
The Bank of England have today raised the key Interest rate by 0.5% to 1.75%. Raising rates by 0.5% is something not seen in the UK for over 27 years and prompted traders to call for the UK to be approaching the end of the rate hiking cycle. What scared the market was the accompanying forecast from the BoE in which they believe the UK is going to enter a protracted recession in which inflation is likely to remain very high for longer than many have given credit. This announcement prompted more investors to begin buying UK bonds in preparation for an incoming recession.
Equity markets in the US rallied sharply yesterday as the US Federal Reserve (the Fed) increased interest rates by 0.75% (now to a range of 2.25% to 2.5%) and suggested that future rate rises could slow after September. Government bond prices ended the day flat, however, as uncertainty remains high as to the global economic outlook and thus remains skepticism that the Fed will be able to slow its aggressive rate hiking trajectory this quickly. Given the International Monetary Fund (IMF) slashed global growth forecasts previously in the week, the Fed has admitted it will remain ready to react to the economic data, despite their current outlook.
UK inflation continued to surge in June with rising fuel and food costs pushing the inflation rate up to 9.4% from 9.1% in May. Inflation in the 9% territory hasn’t been seen since the 80’s and surprised investors who were expecting inflation to move lower in June. The number prompts speculation that the Bank of England will further raise interest rates to cool what is obviously more entrenched inflation than many are giving are fearing.
The resignations of Chancellor Rishi Sunak and Health Secretary Sajid Javid set off a wave of government and party exits which exceeded fifty before the Prime Minister eventually succumbed to the mounting pressure and stepped down. Mr Johnson remained unapologetic for his record as Prime Minister and announced he would stay on in a caretaker role until his successor is chosen. The Tory leadership contest is now unofficially under way, with Boris Johnson's resignation setting the wheels in motion for a new prime minister to take the reins. The pound staged a rally on the news as did UK stocks, in the hope that the UK can move on from Mr. Johnson's tumultuous reign.
The UK central bank (BoE) has raised UK interest rates by 0.25% to 1% at its meeting today, in a continued bid to combat inflation running at 30 year highs. The BoE also signaled it expects a recession to take hold later in Q3 and into Q4, but that it is more important to continue to take steps to limit inflation. The bank expects inflation could peak at 10%, currently 7%, citing energy price inflation as a key driver. UK sovereign debt, which is sensitive to interest rate rises, was being sold following the news, allowing yields to rise. Sterling also fell on the news, likely due to the gloomy economic forecast from the BoE. UK equity was not strongly affected, with recent negative sentiment towards global risk assets still weighing heavily on UK equities. The FTSE All share remained near its March 2022 lows, whilst the internationally focused FTSE 100 remained steadier, boosted by a weak home currency.
The Federal Reserve announced it will raise its benchmark policy rate by 75 basis points, while also suggesting that this potentially won't be the only adjustment of this magnitude. This was done in an attempt to combat the announced inflation rate, sitting at 8.6%, the highest level in 40 years. The Fed is not alone in its endeavours to deal with inflation, which has become a global trend. Central banks throughout advanced and emerging economies have been swiftly raising interest rates in short order, with plans to do more this year. US financial markets rallied after Powell said that he expected a 0.75 percentage point increase to be relatively uncommon.
Gross domestic product fell 0.3 per cent between March and April, and the pound tumbled to a two-year low against the US dollar after the UK economy contracted in April, missing forecasts and confirming the recovery has stalled since January as surging prices hit household spending and business activity. The Sterling has slumped by as much as 1.5 per cent to $1.2140, as the latest gloomy economic news was compounded by a broad rally for the dollar to push the exchange rate to levels last seen in May 2020.
On Friday, the monthly rise in the consumer price index, is significantly faster than the 0.3 per cent increase recorded in April and above economists' expectations for a 0.7 per cent uptick. This maintains pressure on the US central bank to hike interest again in an attempt to avoid a recession. At that pace, the year-over-year figure intensified to 8.6 per cent, the highest level since December 1981. Lael Brainard, the vice-chair, recently made clear that the Fed could continue the half-point pace through September and would only consider reverting to more typical quarter-point increments following a 'deceleration' in monthly inflation prints. According to the BLS, the 'broad-based' increase was driven primarily by a 3.9 per cent rise in energy prices and a 4.1 per cent gain in gasoline prices. The latter is up nearly 50 per cent compared with the same time last year.
The European Central Bank (ECB) has signaled that it plans to raise interest rates in Europe by 0.5% in September, further to a planned rise of 0.25% in July. This half point hike is only planned should inflation fail to ease off from its current level of 8.1%. These hikes would life Europe out of negative interest rates for the first time since 2014. The ECB also said that it plans to keep its balance sheet of purchased bonds level and won't consider reducing it until after the rate hike cycle begins. There was, however, disagreement between members of the board as to when to start reducing this showing a shift in sentiment. European sovereign debt fell in value following the news, whilst the Euro fell against other major currencies. European equities were also lower following the news as recession fears increased, along with the surprisingly hawkish ECB.
On Monday night, the UK's Prime Minister managed to hold on to his title but was left under no illusion that his authority had been left badly damaged. He won the vote by 211 to 148, meaning 41% of Conservative MPs believe Mr Johnson should no longer serve in Downing St. The result, which the Prime Minister described as ‘convincing' comes after weeks of anger following multiple lockdown-breaking parties. Current rules state that Mr Johnson cannot be challenged for another year but history suggests he may not last that long. Previous Tory prime ministers Margaret Thatcher, John Major and Theresa May all survived the vote, only to lose office shortly afterwards.
Nonfarm payrolls increased by 390,000 in May. The figure, which kept the unemployment rate at a 50-year-high of 3.6%, beat estimates by over 60,000 and went a small way in quelling fears of an economic slowdown. The gains in jobs were broad-based with leisure and hospitality leading while retail suffered, suggesting consumers were shifting from goods spending to services. Labour force participation did also edge higher, rising to 62.3% though still 1.1% below pre-covid levels.
Data this morning shows UK inflation is now the highest among any advanced economy in the world at 9%, marking a forty-year high. Around three quarters of the April jump was driven by a sharp climb in utility bills. This is particularly troubling as this will hit the UK's poorest families even harder as they spend a vaster proportion of their income on gas and electricity. This comes in a week where the UK also set another record – the lowest unemployment in nearly half a century. The jobless rate stands at 3.7% in the three months to March however, the UK's workforce remains smaller than it was pre-pandemic due to lower willingness and ability to work and less job seeking.
Following a flat GDP reading in February, the UK economy has shrunk by 0.1% in March after a lackluster period for retail in particular. Year on Year, the UK economy has grown 8.7%, a strong rebound from the pandemic, though inflationary pressure is topping the list of headwinds as we progress through 2022. This is exacerbated by the war in Ukraine, though inflation has been mounting since economies reopened following several lockdowns since 2020. UK sovereign debt saw a notable lift at market open as safer assets were being sought due to growing risk of recession, and following recent declines for gilt prices. UK equities declined, though were caught up in global risk off sentiment following US inflation data yesterday showing a stubbornly high level persists for the world`s largest economy, with implications for the global picture.
US CPI was measured at 8.3% year on year in the month of April, which despite being a small decline from the previous month reaching 8.5%, did not do much to allay fears about the current inflationary environment leading to recession. US inflation has increased each month since August 2021, making this the first reading in 10 months to come in lower, though only marginally, so all eyes will be on the next few readings to see whether the trend continues. Equities reacted to the print, which was taken as adding to risk of more interest rate hikes than currently priced into equity markets. Growth assets tend to suffer in a rate hiking environment, which yesterday was observed mostly in the US tech index (Nasdaq) and extremely speculative assets such as cryptocurrency. US sovereign debt has since rallied following initial volatility, as recession fears increased.
428,000 new US jobs were posted for the month of April, slightly ahead of forecasts, underscoring a robust US job market despite mounting economic headwinds. This is on par with job creation the previous month so the data does little to add clarity to growing uncertainty over recessionary risk amidst central bank interest rate hikes and a persistently inflationary environment. Unemployment also stayed level at 3.6% in April, keeping concerns about a material shift in the labor market at bay for now. Markets continue to see increased volatility following central bank rate hikes, with global equities seeing losses again on Friday, whilst the US dollar holds onto recent strength.
The UK central Bank, the Bank of England (BoE), has moved to raise interest rates by another 0.25%, bringing the key rate to 1% today, a move largely anticipated by markets. Details of the BoE`s meeting revealed that 3 members of the board of 9 would have preferred to raise rates by 0.5%, which was more hawkish than expected. The BoE`s inflation expectations have also risen to 10% by the end of the year for the UK and additionally they now expect the economy to contract going into 2023 due, in part, to high commodity prices. In reaction to the BoE`s rate decision, sterling has fallen, underscoring the worsening of the central bank`s outlook as currency usually strengthens when rates are lifted. UK sovereign debt was also being bought as recessionary fears increased and risk off assets looked more attractive.
The US Federal Reserve (The FED) last night raised interest rates in the US by a full half a percentage point which hasn’t happened for over 20 years. The FED announced they would look to raise rates by another half a percentage point at the next two meetings in June and July to combat rising inflation. The market rallied into this news as the FED also said they were, at this moment in time, not considering a 0.75% hike which the market had begun to price in over the last month. All eyes remain on the probability of aggressive rate rises causing a recession in the coming year which very much remain on the cards.
The US economy in Q1 2022 contracted 1.4%. The contraction came as a surprise to the market given the last quarter of 2021 saw the US economy grow 6.9% annualised. Despite consumer spending increasing 2.7% these missed expectations of 3.5% indicating a slowing consumption story in the US which is associated with an economy heading towards a recession. US equity markets rallied on the news under the assumption that this deteriorating number was reason for the FED to hold off raising rates to aggressively.
UK Inflation surged to 7% in March which was an increase from 6.2% in February. This 7% figure is in stark comparison to the same time a year ago when March’s inflation came in at just 0.7%. The inflation surprise will likely strengthen the case for the Bank of England to continue to raise interest rates to further control this runaway inflation.
US inflation has come in near economists' estimates at 8.5% year on year (YoY) in March, bringing inflation to the highest level in the US since the early 1980s. The Consumer Price Index (CPI) which measures a broad basket of goods, saw an increase from 7.9% YoY, showing that prices continue to rise as conflict in Europe also pushes many prices further, most notably energy. The core measure of CPI which excludes energy and food prices, was up 6.5% YoY, showing the stronger impact energy and food prices have had on the March figure. The US central bank has, ahead of this month's data, increased signaling that it stands ready to help counter inflation, and has said it will hike interest rates and reduce the bank's balance sheet at a faster pace if required. Following the news, most developed market assets are seeing positivity, including precious metals and bonds, whilst the US dollar fades in absence of any surprise to the downside.
The US recorded strong jobs growth in March as higher wages lured more workers back to the labour force, giving the Federal Reserve another data point to support an aggressive tightening policy to help ease inflation. The report, which showed the world's largest employer adding 431,000 jobs in March, was slightly below Bloomberg's forecast, however it still indicated a substantial increase in what many deemed to be a tight labour market. Further to this news, the unemployment rate dropped 0.2% from February to 3.6%, making it the lowest level since before the pandemic. January and February farm payrolls were also revised higher, further cementing the view that the US economy is headed towards a full recovery. Economists believe this solidifies the case for a 50 basis point rate rise by the Fed at their next meeting.
The UK Consumer Price Index (CPI), the most common measure of year-on-year inflation, hit a new 30-year high of 6.2% for February. This 0.8% increase was the largest monthly jump between January and February since 2009. The UK Chancellor responded today, in his spring statement, revealing income tax would be cut and the National Insurance threshold will be increased by £3000 to £12,570 in a bid to help households weather the storm. The National Insurance changes will come into effect for July, saving £30mn people £330 per year but the income tax basic rate reduction from 20% to 19% will not come into effect until 2024. Energy and environment groups hit back suggesting the majority of households need more relief to shoulder unprecedented rises in energy bills so far this year.
The BoE's monetary policy committee today voted 8-1 to raise interest rates 0.25% for the third successive policy meeting. The UK, now back to their pre-pandemic interest rate of 0.75%, finds itself with a lower inflation figure than the U.S. but still at a 30-year high of 5.5%, well above the Bank's 2% target. The Bank forecasts the annual inflation rate will rise to 8% next quarter and potentially even higher in the second half of the year after factoring in the Russian invasion as well as other 'very large shocks'. The quarter percentage point increase was seen as a lower rise than expected, sending the British pound down 0.3% and the FTSE 100 up 0.4%.
The U.S. Federal Reserve confirmed an interest rate hike in a bid to combat surging inflation which most recently topped 40-year highs of 7.9%. The quarter percentage point rise, which is the first in more than three years, was widely expected by investors and had largely been priced into equity markets. What was less expected was the central bank's forecast of six additional hikes this year, three more than forecasted, as increased oil prices begin to bleed into inflation data. Stocks initially gave back previous intraday gains on the news but rebounded back again to finish strongly up for the day.
US consumer price growth hit 7.9% ahead of a surge in energy prices following Russia's invasion of Ukraine, further raising pressure on the Federal Reserve to more substantively tighten monetary policy. It is now being marked as the fastest annual increase in CPI since 1982. Furthermore, the latest report was done prior to Russia's full-scale attack on Ukraine and the US and its allies' unveiling of the most punitive financial penalties ever levied on a country in retaliation. In addition to enforcing sanctions on Russia's central bank and ringfencing the country from the global financial system, the Biden administration this week banned imports of Russian oil and gas into the US. The actions have rocked global energy markets, sending gas and oil prices rocketing, with wheat, nickel and other commodities also soaring. Resultantly, headline inflation is expected to rise and the peak in the pace of consumer price growth that was broadly expected later this year is likely to be delayed.
Vladimir Putin has begun a full-scale military invasion of Ukraine and demanded Kyiv's army lay down its weapons, starting what could be the largest conflict in Europe since the second world war. With bombardments of artillery, heavy equipment and small arms, Russian troops launched attacks from Ukraine's northern border with Belarus, across its eastern frontier with Russia, and in the south from Crimea, the Ukrainian peninsula Russia invaded and annexed in 2014. Major global powers have further condemned the actions of Russia, vowing to take ‘decisive action'. Markets have reacted to the most serious threat of a World War since WW2, with equity indexes such as the FTSE and CAC 40 falling as much as 2.5%. The Russian MOEX index fell as much as 50% and safe haven assets such as Gold and Silver have risen sharply, with Brent crude surging past one hundred dollars a barrel.
Following weeks of increasing tensions between Russia and the West over the amassing of troops near the Ukraine borders in Russia, Crimea and Belarus, Russia has announced it recognizes the disputed regions of Donetsk and Luhansk as independent and begun moving in troops. The situation has hurt risk sentiment for weeks, with global equity indices moving to the downside, whilst safe havens such as gold and government bonds have seen gains. As Russia made its announcement, after a fiery speech from President Vladimir Putin, equity markets opened sharply to the downside, though recovered much of the losses throughout the day, showing that, for the time being, markets have priced in much of the negativity. The West also hit back today with a round of sanctions, though more are planned. The situation remains uncertain and fluid, dependent on if the situation escalates or deescalates from here.
The Bank of England is under pressure to raise interest rates yet again after UK inflation accelerated to its highest rate in thirty years. Consumer prices rose at an annual rate of 5.5 per cent last month, up from 5.4 per cent in December and well above the 0.7 per cent in January 2021, data published by the Office for National Statistics showed on Wednesday. This data highlights that UK inflation was more than double the 2% target set by the central bank. Looking forward, inflation is expected to peak at about 7% in April when Ofgem, the energy regulator, will increase its default energy price charge cap. Analysts have argued however that even with the fiscal support announced by the government earlier this month, higher inflation is coming and the income squeeze will become more prevalent. All of this fuels more expectation that the Bank of England will raise interest rates again this year.
UK GDP rose 7.5% in 2021 compared with the previous year which was the strongest single years GDP growth going back to the second world war. However, this growth number was off the back of a 2020 number which was severely depressed because of the pandemic measures put in place. The bank of England said it expected the impact from Omicron to be erased by March this year, but that inflation was posing an ever-greater risk to household finances which has pulled forward expectations of another quarter point hike in March for the BofE
The US economy added 467,000 jobs last month, which was far better than expected performance for the labour market amid the surge in coronavirus cases due to the Omicron variant. The surprise jump in the payrolls defied predictions by economists surveyed by Bloomberg, who projected gains of 150,000 jobs. In addition to the jump in payrolls in January, there were also large upward revisions to data from previous months, while wage growth also rose more than expected. The unemployment rate ticked up to 4 per cent despite the strong gains, from 3.9 per cent previously. US government bonds sold off after Friday's jobs report, amid fears that inflation could continue to accelerate. The two-year Treasury note yield, which is sensitive to monetary policy expectations, jumped 0.09 percentage points to 1.28 per cent, the highest level since early 2020. It will fuel expectations that the Federal Reserve will move more aggressively than planned to tighten monetary policy to stamp out inflation.
The Bank of England has raised interest rates from 0.25% to 0.5% as it attempts to tame inflation. This is the first back-to-back interest rate rise since 2004 and thus intensifies the squeeze on household finances, with inflation forecast to increase to 7.25% in April. This all comes amid the perpetual concerns about inflation, which is threatening to fuel a cost-of-living crisis for British households. The Bank's Monetary Policy Committee voted on the rate decision today and the majority was slim, by five to four. The minority wanted an even larger increase to 0.75 per cent to get a further grip on surging inflationary pressure. The markets have responded to this emphatically with 3-year yields at long-term highs and 10-year and 30-year yields also hitting long-term highs. The pound strength to the euro (1.2049) is also the highest it has been since 2016. This all represents traders' worries about inflationary pressures, which seem more prevalent than what was already priced in.
Consumer prices in the eurozone rose a record 5.1 per cent in January from a year earlier. This was a result of steeper increases in energy and food prices, only partially offset by slower growth in prices of manufactured goods, meaning inflation rose from its previous eurozone record of 5 per cent in December. This was contrary to the widespread expectations for eurozone inflation to fall at the start of this year. Economists polled by Reuters had on average forecast eurozone inflation of 4.4 per cent in January. Markets this week therefore pulled forward expectations of tighter eurozone monetary policy, with a rise in the ECB's deposit rate to minus 0.25 per cent — from minus 0.5 per cent — now priced in by December. This surprise headline inflation print is only heightening the pressure on the European Central Bank to respond with tighter monetary policy, especially as other central banks around the world gear investors towards a world of higher interest rates.
The inflation rate for the UK jumped to 5.4 per cent in December, its highest rate in 30 years. The result of this is heightening a cost of living crisis and squeezing household incomes. The large annual rise in the consumer price index reflected widespread increases in the cost of most goods and services and again exceeded economists' forecasts of a small rise in December to 5.2 per cent from 5.1 per cent in November. Analyst's expectations for spring levels of inflation is to push even higher, in excess of 6 per cent, with gas and electricity prices being a large contributor to this. All of this is putting ever more pressure on the Bank of England to raise interest rates, who, having failed to anticipate the surge in inflation, now have a problem. They face pressure to raise interest rates to cool spending and bring inflation down towards its 2 per cent target, but does not want to squeeze household budgets too far and undermine the recovery.
GDP in the UK has come in above economists` expectations at 0.9% in November 2021, well ahead of the consensus 0.4% figure. This leaves the UK economy larger than before the Pandemic in the month just before the Omicron variant begun to sweep through the nation. Factors at play were early spending in the lead up to Christmas and increased spending on restaurant bookings. Production, Services and Construction all saw growth in the period, and notably Construction had recovered from a long string of lacklustre months dating back to April 2021. It is expected that due to restrictions surrounding the Omicron variant that were introduced, December's figure will be more muted. Markets remain stable in wake of the release, despite this milestone being reached.
US consumer price inflation for the month of December has reached a level not seen in over 40 years with year on year inflation reaching 7% and month on month inflation hitting 0.5%. Despite these large increases the December increase of 0.5% was down from 0.8% the previous month and the yearly figure of 7% was in line with market expectations which caused little to no ripple through global stock markets. The Nasdaq actually found some strength amid the growth sell off which has griped this market. This number firmly puts the chances of a US hike in March on the cards with markets having largely priced in this hike already.
Markets continued their decent today with tech taking the brunt of the losses as US job data for December showed unemployment rate in the US at 3.9% which is just below the 3.5% pre pandemic unemployment level. Rises in hourly earnings also painted a positive picture of the labour market in the US. The market has seen this as evidence the FED now have all the reasons they need to raise rates sooner than the market expects with investors starting to price in a rise as soon as March. This move has prompted weakness in both US growth stocks and treasuries.