Yesterday’s inflation data surprised markets. The data was released slightly ahead of European core trading hours. The lighter liquidity available at this time could have resulted in the short-term spike towards 1.2450 on cable and around half a cent to the mid-1.15s within GBPEUR. However, you could, and perhaps should, still argue that the subsequent unwinding of yesterday’s Sterling spike was too short lived. After all, does the inflation data not materially impact the likelihood of a rate hike at the Bank of England’s June meeting? Well, much of the chatter in markets yesterday was that whilst the inflation data puts pressure on the Bank, whether it will yield to that pressure and indeed can even afford to do so is another question.
UK Inflation did drop significantly to 8.7% in April, with core inflation coming in at 6.8%. Headline inflation was some half a percent higher than forecast thanks to persistent food price and services inflation. The dramatic fall from the March figure was largely statistical, with year-on-year figures now comparing with a point in time beyond the April 2022 50% jump in fuel prices. Markets will be looking not only to whether the Bank adjusts its course for June’s meeting but also the change to any inflation forecasts. Yesterday’s data confirmed excessive and persistent food price inflation, as we detailed yesterday.
A very old conversation
AAA. That’s the ratings most agencies ascribe to US debt. As the benchmark of safety and often used as a proxy for the risk-free rate of return globally, US treasuries have attracted the highest rating from agencies since most of their inceptions. It is not unheard of for a ratings agency to downgrade US debt in the face of debt ceiling talks. For example, the debt ceiling crisis, post financial crisis, in 2011 saw Moody’s downgrade US debt for the first time since the AAA rating was awarded in 1917. Fitch Ratings yesterday confirmed that the US Treasury bill rating was under review with the agency considering whether the increased partisan nature of debt negotiations creates a more structural vulnerability to the operation of US governance. The Dollar remains bid and bonds close to expiration retain a significant premium as a result of the ongoing negotiations.
Japan Some of the market’s Great Minds spent yesterday afternoon debating whether Japan could get away with raising interest rates at the same time as the Central Banks from the other major markets are starting to cut their interest rates. In short, Japan can and probably will, since its monetary policy has been effectively in […]
Rather you than me, Christine As we and the market alike have been speaking about recently, Eurozone rates are all the rage. As we highlighted yesterday, the path for rate cuts next year has already captivated the market with easing being forecasted as early as Q1 2024. As we approach the Christmas period, we must […]
European Interest Rates More momentum on rate cuts in the Eurozone as expectations grew for cuts starting in March and totalling 140bps in 2024. Equally in the UK cuts of 130bps starting in June are being pencilled in to market calendars. What this means is that GBP/EUR is looking more than especially good value at […]