ACM Update 27-04-26
As US-Iran talks remained stalled, the US Dollar traded relatively flat across last week. In the UK, there was a range of market data to digest as inflation moved up, but unemployment came down.
The coming days will see a plethora of central bank meetings, with five of the biggest spread across the middle of the week. How will consensus amongst policymakers have shifted since the last round of meetings, which were close to the start of the Iran conflict.
It was back to market data dominating headlines last week, amidst the hiatus in the Middle East. UK news was the biggest contributor, with a range of releases published. Perhaps the biggest news-grabber though was a press conference….
We start off with UK inflation which, as expected, jumped back up in March. The jump was in line with market expectations at 3.3%, up from 3.0% the previous month. Unsurprisingly, the change was primarily driven by an 8.7% monthly jump in fuel prices, the largest monthly shift since June 2022. Food price inflation also contributed, although this was largely attributed to seasonal meat and chocolate increases around Easter.
The change was expected but has set alarm bells ringing in the food industry. One body, the Food and Drink Federation, warned that food inflation could see a 10% spike by year end owing to energy price rises being passed on. GBP itself was little moved on Wednesday morning, as the data matched the forecast.
Inflation was up, but unemployment headed down. Whilst the February move from 5.2% to 4.9% marked the lowest reading since September’s data, all wasn’t quite as it seemed. The fall was more to do with more people, especially students, leaving the workforce altogether rather than any hiring spree.
Overall, payroll numbers are down by roughly 74,000 for the UK workforce in the past year, pointing to further signs of a cooling jobs market. Wage growth meanwhile cooled to 3.6%, bringing it the closest to headline inflation in three years. With inflation spiking upwards though, that isn’t as good news for economists as it should be and is further bad news for the expansion of the UK economy.
Government borrowing figures fell to a three-year low also, if temporarily. Despite the fall, analysts predict a prolonged war in Iran could lead to support being offered to households to help against energy price hikes. For now, UK retail sales data for March which was published on Friday, demonstrated a bounce back to wipe out the negative figure from February.
The press conference that grabbed a lot of market headlines came from the Deputy Head of the Bank of England, Sarah Breeden. She used a Wednesday event to share her belief that stock markets are too high and set for a fall. The amount of uncertainty globally at present is failing to be priced in, Breeden believes. The move was quite an outspoken exception for a Bank of England policymaker.
What did all of these data releases do for GBP during the week? Very little in fact. Sterling traded in a range of around 0.5% versus both the US Dollar and Euro last week. Markets arguably are more focused on the central bank meetings taking place this week.
Movements on GBP-USD can be seen below:
US economic data was slightly quieter, despite news events there being in the headlines. Saturday night’s attempted attack on Donald Trump was preceded by further Jerome Powell news which impacts the Fed Chair’s likely successor.
Economically, the Powell news held the biggest weight as the US Justice Department finally dropped their probe into Jerome Powell. Instead, an internal investigation will take place at the Federal Reserve. The changes came as a key Republican Senator had previously removed support for potential incoming Fed Chair Kevin Warsh, until the investigation into Powell was dropped.
Was it ironic that the announcement came shortly after Kevin Warsh’s own Testimony to the Senate, perhaps not. But either way the move now paves the way for this week’s Fed meeting to likely be Powell’s last. His successor is due to take over at the end of May, which should now be a formality given an investigation is no longer active.
With tense negotiations offering little sign of progress in the Middle East, the Iran topic caused limited FX market movement last week for the first time since the conflict began. However, the US Dollar could still be sharply influenced by any major changes in stance.
US economic data for now doesn’t seem too heavily impacted by the war. The initial April releases showed a rebound in business activity, but output prices rose at their fastest rate in nearly four years. This suggests that continued inflationary pressure isn’t going away any time soon.
Consumers also seem to agree, as inflation forecast data suggested expectations of hitting 4.7% this year. Americans are clearly worried about the longer-term impacts domestically of the war in Iran. To date though, retail sales for March showed spending remains strong for now.
Ahead of this week’s Federal Reserve meeting, the persistent inflation and geopolitical risks are likely to see a hold in policy. Can we expect a hawkish final shot across the bow from Jerome Powell in his final scheduled press conference though?
With Europe being so energy-driven, the lack of Middle East news saw little movement for the currency. Recent swings have weighed heavily on the Euro, mainly on events surrounding the Strait of Hormuz.
Looking forwards, economic sentiment data is pointing towards a sharper than expected slowdown. Both the ZEW economic sentiment and PMI data fell sharply as markets continue to be nervous.
Christine Lagarde spoke at a couple of events last week. The ECB President emphasised that the Bank are in a wait and see mode as events surrounding Iran unfold and that the “stop-start” nature of the war is making the outlook unpredictable. She also warned of a potential “stagflation scenario”.
On rate hikes, Lagarde acknowledged the persistence of inflation on the continent, but did not show concern. Along with other recent ECB comments, we can expect interest rates to remain on hold this Thursday, with markets looking for guidance for the June meeting instead.
Movements on GBP-EUR can be seen below:
The week ahead:
Monday – Trump speech (00:00)
Tuesday – BoJ rate announcement (03:00), US Consumer Confidence (15:00)
Wednesday – BoCanada rate announcement (14:45), Fed rate announcement (19:00) & Press Conference (19:30)
Thursday – EU CPI inflation (10:00), BoE rate announcement (12:00), ECB rate announcement (13:15) & Press Conference (13:45), US Advance GDP (13:30)
Friday – EUROPEAN BANK HOLIDAYS, BoE Pill speech (12:15)
A brief reminder that next Monday (4th May) is a UK bank holiday. The Aston offices will be closed as a result and the Aston Origin platform will be non-tradable for that day.
Looking to this week, as mentioned there are a number of central bank meetings taking place. These start in Japan on Tuesday, before Canada and the US on Wednesday, then the UK and Europe on Thursday.
For the majority of our clients, the events of Wednesday and Thursday are of most significance. The Federal Reserve release on Wednesday evening is highly unlikely to see any immediate policy change. Forward guidance for their June meeting and any parting shots from Jerome Powell, however, could cause a bit of a stir.
The Thursday meetings of the Bank of England and European Central Bank are equally unlikely to see a change in current interest rates. The Bank of England usually have certain members swayed towards an immediate rate hike to combat the recent rise in inflation, but for now a 0-0-9 (cut-hike-hold) is forecast. The uncertainty levels at the minute are too high for most to change policy. Personally though, one would expect a couple of outliers still.
Given the range of releases before the long weekend, the middle part of the week could well see plenty of movement. This is more likely to come from future rate narrative, than any current policy shifts.
As always, watch this space for more information and make sure to reach out to the Aston team to discuss any pending requirements that you may have in the pipeline.
Have a great week.
