ACM Update 22-05-23
All relatively quiet for UK economic data of late, despite an apology from the MPC’s Huw Pill. This week we have the latest round of British inflation figures, expected (perhaps optimistically) to show a sizeable drop. Will this see GBP break out of its recent narrow range versus the Euro?
To put it mildly, a very quiet week of market movement last week especially for GBP against the Euro. We still find ourselves in the same 3% range we have been in for the last five months. The only major UK data release was the unemployment & claimant count data on Tuesday morning, which showed poor figures on both fronts. Unemployment has nudged up to 3.9% and the number of those claiming benefits also increased by more than expected.
The remainder of UK influences came from MPC members. Chief Economist, Huw Pill, apologised for his comments of a fortnight before, where he stated Brits needed to accept they are poorer due to inflation. He didn’t change his stance however, just admitted he could have “used somewhat different words to describe the challenges we all face”. Meanwhile Andrew Bailey said in his own speech that “inflation is to start falling sharply”…… We will find out this week.
On the continent, Eurozone data releases were few and far between too. Flash GDP for Q1 was confirmed as a growth of 0.1% versus the quarter before. Meanwhile German ZEW economic sentiment dropped sharply to -10.7, which is its first negative showing of 2023.
Christine Lagarde maintained her somewhat broken record stance of stating “the ECB will be courageous to take decisions needed to bring inflation back to 2%”. Her comment about “more delicate decisions going forward”, was interpreted by some as a signal towards less aggressive rate hikes to come. This weakened the Euro a shade late on Friday, nudging to the high of a narrow week’s trading on GBP-EUR.
We are towards the top end of the recent range though, so a sizeable inflation number this week from the UK, may increase the likelihood of further interest rate hikes from the Bank of England. Euro sellers, take note!
As mentioned, limited movement for the Pound versus the Euro of late (just 0.61% last week), as illustrated in the chart below:
US retail sales data for April was released on Tuesday and showed a slight growth of 0.4%. This was lower than expected but was still a positive at least for only the second time in the last six months. Unemployment claims bounced back after the disappointing figure the week before to match the figure of a fortnight previous.
Fed Chair Jerome Powell’s late Friday night speech led to mixed thoughts about the upcoming June meeting. His comments circulated about the recent issues in the US banking sector, and how they have led to tighter credit conditions. Inadvertently, he thinks that this will weigh heavier on growth hiring and inflation. “As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals”, was his parting shot.
The above caused little by the way of movement for GBP-USD (1.24% on the week), as shown below:
G7 Meetings – The surprise appearance of Volodymyr Zelensky led to widespread condemnation of Russia and separately China.
Canadian inflation unexpectedly rose for the first time in 10 months to 4.4%, fuelling speculation about further rate hikes.
The Reserve Bank of Australia minutes from their recent meeting showed consideration for a hike and a pause. The hike eventually prevailed much to the surprise of markets. Australian unemployment unexpectedly jumped to 3.7% in April.
Monday – Rightmove House Price Index (00:01 UK time), Canadian Bank Holiday (Victoria Day)
Tuesday – EU/UK/US Manufacturing & Services PMI (08:15 to 14:45)
Wednesday – New Zealand interest rate (03:00), UK inflation exp 8.2% prev 10.1% (07:00), Andrew Bailey speeches (10:30 & 14:00), Federal Reserve meeting minutes (19:00)
Thursday – US preliminary GDP & Unemployment Claims (13:30)
Friday – UK Retail Sales (07:00)
A slightly busier week of events this week to come, with UK inflation on Wednesday morning one of the most significant. A fall of almost two per cent compared to last month is expected which on the face of it feels like a massive drop, and it would be. Looking at historic numbers though, between April and May inflation jumped by 2% last year so we may well see the figures come back down by a good distance. Andrew Bailey knew what he was saying last week it seems.
The only other significant UK release will be retail sales data on Friday morning. As always, it will be interesting to see if the cost of living crisis is weakening consumers’ appetite to spend on the high street.
The minutes from the latest Federal Reserve meeting will give an indication as to their ongoing policy stance. That said, Jerome Powell has been fairly vocal of late with regards to his own and the Fed’s intentions, so probably not too many surprises here.
Do reach out to the Aston team regarding any upcoming payments and we will be happy to assist.
Have a great week.