21st July 2024
President Biden steps down from re-election
President Biden has today stepped aside from the upcoming presidential election and will no longer run for re-election. This development has come after months of speculation about the state of the president’s health with many seeing this development as a foregone conclusion. In the announcement, rather than opening up the democrat seat to a contender the president has endorsed VP Kamala Harris to run for president. This should at least rally the party around a new contender to compete against Trump in the November elections.
5th July 2024
Labour party takes historic landslide victory in UK election
With polls closing in the UK last night, the exit polls suggest a landslide victory for the Labour party and a loss for the Conservatives which hasn’t been seen since 1945. Whilst this was largely expected, the big winners were also UK reform which took more seats than anticipated highlighting the desire in the UK population about wanting to deliver change to the UK political landscape. The market showed little reaction to the news with the Pound and FTSE All share rallying at the open suggesting the market sees a Labour majority as a positive step towards stability for the UK.
19th June 2024
UK inflation back on target
Headline inflation in the UK has dropped to 2% today, in line with forecasts and now meeting the Bank of England's aim of a stable rate of inflation. Services inflation, despite having decreased 20 basis points, remains high at 5.7%; an area of concern for the Bank of England when considering rate cuts. Thus, interest rates are forecasted to remain constant at 5.25% following tomorrow's MPC meeting. The UK has proven resilient in the aftermath of COVID – sharp monetary tightening is proving effective for controlling the highest price rises since the early 80s. In other areas, such as the eurozone and the US, Inflation has proven persistent, with the European Central Bank recently raising inflation forecasts for this year whilst the US Federal Reserve also raised forecasts for core inflation for the end of the year.
12th June 2024
US Inflation lower than estimates
US inflation dropped to 3.3% in May, slightly below economists' expectations. This led investors to anticipate earlier interest rate cuts, with 2 quarter-point cuts forecast by the end of the year, which boosted markets. Traders now see an 84% chance of a rate cut by the Federal Reserve (Fed) before the presidential election, up from 60%. Core inflation, excluding food and energy, was 3.4%, also below expectations. The Fed is expected to keep rates at 5.25-5.5% when they meet later today.
10th June 2024
France goes to the polls in a snap election.
Emmanuel Macron last night called a surprise snap election in France. This came as a direct response to his ruling party loosing badly in an EU parliamentary vote to Marine Le Pen’s far right party. Much speculation abounds about why Macron chose to announce an election after a big political defeat, but one thing is clear, it’s a risk to centralist French politics and thus a risk to French stability and to the continuity of the EU in general. In turn this has implications for the UK and importantly Europe’s approach to the current war in Ukraine. The Euro fell to its lowest level in a month on the news as markets digest the implications.
7th June 2024
More US jobs added whilst unemployment ticks up
Recent US jobs data falls out of sync with previous indicators which pointed to economic weakness. Non-farm payrolls advanced 272,000 in May trumping estimates, wages also climbed 4.1% from a year ago, whilst unemployment unexpectedly rose to 4%. These readings portend to a bleaker view for the US, in which inflationary pressures persist whilst unemployment ticks up, bringing on the risk of stagflation. The upside surprise in jobs growth and wages also pushes the Fed further from comfort in order to begin easing policy, which is in contrast to Europe and Canada who begun cutting rates this week. On a positive, whilst cost push pressures persists, the US economy appears far from recession territory. Following today’s prints, treasuries tumbled, with yields pushing higher, and the S&P 500 edging lower. Fed swaps are now no longer pricing in a rate cut before December.
22nd May 2024
UK inflations cools… but less than expected
The latest UK inflation report shows that consumer prices eased to 2.3% from a year earlier. Yet, despite the sharp drop from March’s Y-o-Y inflation print of 3.2%, the reading was higher than the 2.1% expected. Strong wage growth is keeping services inflation stubbornly higher, notching slightly lower to 5.9% from 6% a month earlier. Core inflation which excludes food and energy costs fell to 3.9% from 4.2% in March. Whilst the latest inflation readings do not impair the Bank of England’s (BOE) ability to cut rates, it does however, push back the timing of cuts to November which markets have priced in. The trajectory of inflation remains positive progressing closer to the BOE’s 2% target but will do so along a bumpy path.
9th May 2024
UK Bank of England keep rates on hold
The UK’s Bank of England has voted to keep UK interest rates on hold at 5.25% in May. The move came as expected to the market which saw no probability of a cut in May. Whilst we expect to see inflation continuing to trend down in the coming months there remains strength in the UK economy which we feel would delay any rate cuts coming to the UK until the later months of the summer such as August or September. A deterioration in UK economic growth would bring these cuts forward however so the whole market remains on data watch for the next signals.
17th April 2024
UK inflation falls in march but not as much as hoped
March inflation in the UK fell to 3.2% against an expectation of a fall to 3.1% which constitutes a miss. The miss largely indicates that inflation is coming down, just not as fast as many were hoping and expecting. The relation to markets is this inflation number feeds into when and by how much the UK cuts its interest rates which consumers rely on to ease the cost of living crisis in some areas. The sticky inflation number will not be good for investors and consumers relying on a falling inflation gauge to help portfolios and household bills.
12th March 2024
US inflation tops estimates
The latest US CPI print notched slightly above forecasts reinforcing the sticky outlook for inflation and sapping hopes of a Fed rate cut before June. Headline inflation came in at 3.2% whilst core inflation which excludes food and energy prices came in at 3.8%. This topped estimates of 3.1% and 3.7% respectively. The tight labour market and strong consumer spending is not helping CPI budge below the 3% handle, despite proving the resilience of the US economy. For now, rates will remain elevated until the Fed is confident inflation is on its downward path to 2%. As such, markets may need to brace for more choppiness ahead should inflation continue to surprise to the upside, and if restrictive monetary policy begins to undermine US resilience.
8th March 2024
US delivers resilient jobs data
The US economy added 275,000 jobs in February, surpassing expectations, but revisions to previous figures complicated the outlook. Although the non-farm payroll figures indicated a strong services sector, downgrades to January and December numbers overshadowed February's gains. Initially, traders speculated on faster interest rate cuts, but later reversed course. Futures markets now predict the first rate cut as soon as June, followed by two or three more later in the year, aligning with the Fed's December projections. The downward revisions to previous months' job gains suggest less robust recent growth. The two-year Treasury yield fell, reflecting altered rate expectations. The S&P 500 dipped after initially rising.
13th February 2024
Hot US inflation curbs early rate cut hopes
US inflation came in hotter than expected dashing all hopes of a rate cut in March. The latest print showed core CPI (which excludes food and energy) at 3.9%, and headline CPI at 3.1% YoY, topping estimates of 3.7%, and 2.9% respectively. The surprise upshot was driven by increases in food, car insurance, medical care, and shelter, with shelter prices advancing the most. These readings from the US highlight the bumpy road ahead to bring inflation back to target and risks undermining the rosy narrative that markets had been pricing in. A scenario whereby inflation continues to moderate without tipping the economy into a recession. Personal consumption expenditure (PCE) figures i.e., the Fed’s preferred gauge of inflation is due later in the month and should provide more clues on the trajectory for inflation. Until then, markets are likely to be roiled with more volatility sending stocks lower and pushing bond yields higher.
30th January 2024
US job openings rose to 9 million in December
US job vacancies surprises towards the upside, with vacancies reaching 9 million versus estimates of 8.9 million. These December figures continue to underscore the strength of the US labour market, retaining hopes that a recession could be avoided. Thus, the rosy scenario where inflation continues on its downward trajectory whilst the economy remains resilient is igniting more optimism that a soft-landing could be in sight. However, the increased job openings will likely usher the Fed further into keeping rates elevated to ensure inflation remains subdued before deciding to cut rates. Another report released Tuesday, showed that US consumer confidence increased to the highest level in January since 2021, in part due to the upbeat labour market.
17th January 2024
UK inflation sees an uptick
We saw an uptick in headline inflation from 3.9% to 4% and a steadfast core inflation figure at 5.1%, which excludes volatile food and energy. Both were above estimates by 0.2%. The BOE believes cuts will happen this year, but they need to see data indicating inflation is under control, while currently it's going in the wrong direction. Upon the stronger than expected inflation print this morning, the market is drawing back bets of early interest rate cuts that were priced in at the end of last year. The most recent numbers are indicating the prediction of slightly stickier inflation, making it harder to get down to the 2% Bank of England target. This set of data indicated cuts in the first half of the year could be too optimistic.
17th January 2024
European inflation update
The inflation print release today for Europe headline inflation staying at 2.9%. This announcement was in line with consensus and demonstrates the difficulty of the final stages in getting inflation back to 2% targets. The European Central Bank President, Christine Lagarde, has signalled that interest rate cuts are more likely to come in summer rather than the market consensus of spring. At the World Economic Forum in Davos, Lagarde reemphasised that they have to keep the rates restrictive until they see signs that inflation is under control. Otherwise, the ECB risks inflation remaining above the 2% target or even climbing again, which would force more interest rate raises.
8th January 2024
US Nonfarm payrolls beat expectations
Labour activity picks up again as US job growth and wage gains surpass expectations. Unfortunately, this dashes all hope for an early interest rate cutting cycle as inflation is likely to remain sticky, and for longer. Nonfarm payrolls rose to 216,000 in December vs an expected 175,000, whilst hourly earnings increased by 0.4% from a month earlier. The unemployment rate held tight at 3.7%. The labour market remains to be key input into the inflationary outlook, and whilst this is a headwind, it also reflects the resilience of the US labour market driven by economic growth and consumer spending. This helps feed into the soft-landing narrative, largely anticipated by markets. Investors can only now hope for a disconnect between labour market activity and inflation, in order to pave the way for Fed to cut rates whilst remaining confident that inflation will continue to moderate.