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.