May 2022

1)    US CPI (Apr) – 11/05 – having seen the US Federal Reserve raise rates by 50bps this week, attention now turns to next month's expected 50bps rate rise, especially if US inflation shows little sign of slowing down when this week’s April numbers are released. This seems likely given Powell’s recent comments about inflation being too high. In March US CPI rose by 8.5%, slightly above expectations, while core prices rose by 6.5%, slightly below expectations, in a sign that inflation pressures could well be close to easing. These expectations proved to be short-lived after PPI in March rose to 11.2% and another record high while core prices rose to 9.2%. With ISM prices paid data still looking frothy, any signs of a peak in headline inflation still seems some way off, with US 10-year yields rising to 3%. This week’s CPI numbers could go some way to determining whether we’ve started to see a pause in inflationary pressures, or whether we get a further lift in inflation expectations. The Federal Reserve has already said it will go for successive 50bps rate hikes at the next two meetings, as well as announcing the process of balance sheet reduction,… Read More »The Week Ahead: US CPI, UK Q1 GDP, ITV, BT and Disney results

The Fed signaled that it will avoid shock-and-awe rate increases, putting more emphasis on avoiding a recession rather than vanquishing inflation. Another round of US inflation data is on tap next week and the Fed might finally get some good news, as the yearly CPI rate may have peaked. Is this the beginning of the end for the dollar’s supremacy? Maybe not. 

Europe European markets have ended the week very much on a downswing as yesterday’s big sell-off in the US has rippled over into today’s price action, pulling markets into negative territory for the week, with the DAX set to finish lower for the fifth week in a row. The FTSE 100 has also had a disappointing week, sliding to a one week low, with the energy sector saving it from a worse fate with both BP and Shell finishing the week very much on the front foot, after their strong numbers earlier this week. Rate hike talk has dominated this week, with the Fed raising rates by 50bps, with more to come, the Bank of England hiking rates by 25bps, and now several ECB officials have started raising the prospect of following suit in July, in comments made today in response to concerns over higher prices to help anchor future inflation expectations. These comments appear to have accelerated today’s weakness as the economic outlook starts to darken.    Today’s price action has been dominated by weakness in consumer discretionary on concerns over weak demand as higher prices prompt a decline in consumer spending. Travel and leisure have also been caught up in today’s weakness with IAG the worst faller on… Read More »ECB rate rise chatter sends markets into the red for the week

Summary United States: 'Til the Medicine Takes The latest economic data suggest supply challenges worsened in April. Delivery times lengthened, and while employers continued to add jobs at a solid pace, the supply of labor weakened. Price pressure has remained elevated as a result. The FOMC raised its federal funds rate 50 bps this week at the conclusion of its policy meeting, and the incoming data for April reinforce our expectation for another 50 bp hike in June. Next week: NFIB Small Business Optimism (Tues), CPI (Wed), U. of Mich. Consumer Sentiment (Fri) International: Reserve Bank of Australia Delivers Initial Rate Hike, BoE & BCB Continue Tightening Faced with concerns about high inflation, multiple central banks around the world tightened monetary policy this week. Notably, the Reserve Bank of Australia (RBA) raised its Cash Rate by 25 bps to 0.35%, citing a resilient economy with inflation that has accelerated faster and higher than previously expected, as well as progress toward full employment and wage growth. The Bank of England and Brazilian Central Bank also delivered rate hikes this week. Next week: Mexico CPI/Banxico Rate Decision (Mon/Thu), U.K. GDP (Thu), Russia CPI (Fri) Interest Rate Watch: The First 50 bps Rate… Read More »Weekly economic and financial commentary

Much has been made of the fact that the western world is experiencing rates of inflation last seen 40 years ago. That’s certainly true of the US, the world’s largest, and most important, economy. There are similarities between the inflation we’re seeing today and that of the 1970s. In both cases oil prices are a major contributor to price pressures. But 1970s inflation was higher than today. It also accelerated over the decade, from around 2% in the 1960s to over 14% by 1980. While energy costs are a factor today, forty years ago a barrel of oil quadrupled in price during the 1973 oil embargo and doubled again in 1979 following the Iranian Revolution. Oil may be over $100 per barrel today, but its rise isn’t a shock like it was back then. We’ve also coped with high oil prices a number of times since the beginning of this century. Selective In the 70s, inflation was everywhere. Today it’s more selective. Some parts of the economy are experiencing rapid price increases (used cars for instance) while others have steady or even falling prices. Much of this has to do with the supply-chain issues, often as a result of pandemic… Read More »Are interest rate hikes the solution to rising prices?

We saw significant market jitters this week with VIX volatility starting off at a two month high. The lack of a hawkish message from the Federal Reserve (Fed) turned things around for a while only for US equities to take a big plunge on Thursday as investors largely consider Fed to be behind the curve. In London, a trading error caused a flash crash in Swedish stocks of 8% on Monday, which immediately spread to the other Nordic and European bourses. Markets quickly normalised again, though. This was also the week where 10-year US treasuries traded through the 3%-level for the first time since 2018. Oil prices bounced to the highest level since March on the back of EU plans to phase out imports of Russian oil and US looking to start re-filling its strategic reserves. Adding further to inflation pressures, refined oil products have increased more in price than crude since the war broke out as Russia is a big exporter here. The Fed largely did what was expected of them this week, as they hiked rates by 50bp and hinted that they will hike by 50bp again at the “next couple of meetings”. Fed chair Powell communicated that… Read More »Weekly focus: Hiking season

We saw significant market jitters this week with VIX volatility starting off at a two month high. The lack of a hawkish message from the Federal Reserve (Fed) turned things around for a while only for US equities to take a big plunge on Thursday as investors largely consider Fed to be behind the curve. In London, a trading error caused a flash crash in Swedish stocks of 8% on Monday, which immediately spread to the other Nordic and European bourses. Markets quickly normalised again, though. This was also the week where 10-year US treasuries traded through the 3%-level for the first time since 2018. Oil prices bounced to the highest level since March on the back of EU plans to phase out imports of Russian oil and US looking to start re-filling its strategic reserves. Adding further to inflation pressures, refined oil products have increased more in price than crude since the war broke out as Russia is a big exporter here. The Fed largely did what was expected of them this week, as they hiked rates by 50bp and hinted that they will hike by 50bp again at the “next couple of meetings”. Fed chair Powell communicated that… Read More »Weekly focus: Hiking season

We saw significant market jitters this week with VIX volatility starting off at a two month high. The lack of a hawkish message from the Federal Reserve (Fed) turned things around for a while only for US equities to take a big plunge on Thursday as investors largely consider Fed to be behind the curve. In London, a trading error caused a flash crash in Swedish stocks of 8% on Monday, which immediately spread to the other Nordic and European bourses. Markets quickly normalised again, though. This was also the week where 10-year US treasuries traded through the 3%-level for the first time since 2018. Oil prices bounced to the highest level since March on the back of EU plans to phase out imports of Russian oil and US looking to start re-filling its strategic reserves. Adding further to inflation pressures, refined oil products have increased more in price than crude since the war broke out as Russia is a big exporter here. The Fed largely did what was expected of them this week, as they hiked rates by 50bp and hinted that they will hike by 50bp again at the “next couple of meetings”. Fed chair Powell communicated that… Read More »Weekly focus: Hiking season

EUR/USD – 1.0542 Despite euro's rally to a 8-day high in Asia Thursday, subsequent selloff to as low as 1.0493 in New York on renewed broad-based rally in usd suggests recovery from last Thursday's 5-year bottom at 1.0472 has possibly ended and below 1.0472 would extend recent downtrend to 1.0405/10. On the upside, only a daily close above 1.0578/83 would prolongs choppy swings and risks stronger retracement to 1.0603, break, 1.0630/40. Data to be released on Friday Australia AIG services index, Japan Tokyo CPI. Swiss unemployment rate, U.K. Halifax house prices, Markit construction PMI, Germany industrial output, France non-farm payrolls, Italy retail sales. U.S. Non-farm payrolls, private payrolls, unemployment rate, average earnings, Canada employment change, unemployment rate and Ivey PMI.

EUR/USD – 1.0542 Despite euro's rally to a 8-day high in Asia Thursday, subsequent selloff to as low as 1.0493 in New York on renewed broad-based rally in usd suggests recovery from last Thursday's 5-year bottom at 1.0472 has possibly ended and below 1.0472 would extend recent downtrend to 1.0405/10. On the upside, only a daily close above 1.0578/83 would prolongs choppy swings and risks stronger retracement to 1.0603, break, 1.0630/40. Data to be released on Friday Australia AIG services index, Japan Tokyo CPI. Swiss unemployment rate, U.K. Halifax house prices, Markit construction PMI, Germany industrial output, France non-farm payrolls, Italy retail sales. U.S. Non-farm payrolls, private payrolls, unemployment rate, average earnings, Canada employment change, unemployment rate and Ivey PMI.