ACM Update 23-05-22

A busy week for UK market data, with unemployment, inflation and retail sales all in the news. Unemployment came in at 3.7% which is the lowest level in nearly 50 years (December 1974), and for the first time ever there is more than one job vacancy for every unemployed worker. This is the first time in the 20 years that such statistics have been measured.

As widely predicted post the energy price cap increase, inflation soared to 9.0% for April, just fractionally under the market expectation of 9.1%. The Bank of England have already commented recently that this figure will likely exceed 10% before it gets better, so we could still have a way to go yet.

Building society Nationwide have warned that UK inflation will eventually start to impact housing prices, but the current bubble hasn’t burst yet. Despite recent concerns, retail sales picked back up again in April, with a growth of 1.4% against an expectation of a third consecutive monthly drop. All of these releases led to a much-needed positive week for sterling against the Dollar, up by 2.5% during the week as shown in the chart below:

Over in the US, retail sales were also the main release of the week, with the figure at least remaining on an expansionary path. Data for April came in at 0.9% versus an expected 1%. Retail sales are viewed as a leading indicator of a slowdown in growth, so the figure remaining positive is a good sign for the US economy, for now.

Elsewhere, Jerome Powell continued to enforce the Fed’s bullish approach to interest rate rises at a Wall Street Journal conference. Powell, confirmed by the Senate last week for a second four-year term, commented “What we need to see is inflation coming down in a clear and convincing way, and were going to keep pushing until we see that”. This reaffirms the expectation that the Fed will continue to play catchup with rate rises, through 50-basis point hikes for the rest of the year.

To continue the inflation talk, the Eurozone measured inflation of 7.4% for the year to the end of April, remaining stable versus the previous month. The ECB maintained their usual non-committal stance in the minutes of their April meeting, released last week. There was mixed opinion between members though as to how rapidly their current monetary policy stance should change. Current expectations are still for an interest rate hike in July of this year.

Overall the Euro recovered some of the recently lost ground against the Dollar, but slipped back against GBP by around 1.5%. The movements for GBP-EUR last week can be seen below:

Anthony Albanese’s Labor party won the Australian election on Saturday, defeating Scott Morrison. It is currently unclear as to whether the new PM will have enough seats in the House of Representatives to secure a majority though (4 of remaining 13 seats needed). However, he is being sworn in today ahead of a trip to Tokyo for a summit with leaders from Japan, India & the US. Smaller independent parties fared well in the vote, with many Australians having lost faith in the two main parties. A coalition looks more and more likely.

This week:

Monday – Andrew Bailey speech (5:15pm UK time), Canadian bank holiday

Tuesday – Manufacturing & services data for UK/Europe/US (all day), Jerome Powell speech (5:20pm)

Wednesday – RBNZ rate announcement (3am), Fed meeting minutes (7pm)

Thursday – Swiss/French/German bank holiday, US preliminary GDP q/q (1:30pm)

Friday – FOMC member Bullard speaks (12:35pm)

A few bank holidays to be aware of, starting in Canada on Monday, then for some European countries on Thursday (Switzerland, France & Germany).

There are fewer major announcements this week after the flurry of data releases last week. Andrew Bailey’s speech on Monday might well give more information as to the current interest rate trajectory plans from the Bank of England, but the committee is still somewhat split.

The manufacturing and services data released Tuesday will again be a good indicator of performance last month for the UK, Eurozone and US. Figures have continued to trend well of late, however inflation may well be starting to hamper the manufacturing sector.

Wednesday contains arguably two of the larger events of the week, starting off in the small hours with an interest rate announcement from the Reserve Bank of New Zealand. A further loosening of monetary policy is expected, with a 50-basis point hike to get back to 2.00%. The minutes from the latest Fed meeting are released at 7pm UK time, likely to give a hint as to the ongoing path of monetary policy. Expectations are still of 50-basis point hikes at the coming meetings.

All in all, we are faced with a slightly more optimistic picture than we have seen recently for GBP, with some recovery last week at least. GBP is still likely to face a challenging time to come, especially with inflation continuing to rise. Rates for GBP sellers have recovered, but for now the picture is a little uncertain as to further positivity.

For any pending requirements, make sure to reach out to the team for assistance.

Have a great week.