ACM Update 30-05-22
Another challenging week for the UK economy, not to mention the man at the helm of the country, Boris Johnson…
The Bank of England Governor, Andrew Bailey, was the first UK-focused event of the week. Bailey spoke at a conference in Vienna, swatting away criticism of the banks handling of the current inflation issues. He reassured that the economy was currently 0.6% above its pre-COVID position, whilst noting the “tight labour market” conditions. He maintained that the bank's aim is to bring inflation under control in the medium term.
Inflation was also in the headlines in the Commons, where Chancellor Sunak unveiled measures to combat the cost-of-living crisis in the UK. Households are to receive a one-off £400 towards their energy bills for winter. The move will cost circa £15 billion in total and came just a day after Boris Johnson’s apology to the findings of the Sue Gray report…
The main economic data for the week came in the form of the UK services sector figures on Tuesday morning. This came in well under expectation and saw circa 1% wiped off the value of sterling throughout the morning. Overall GBP finished the week off flat against the single currency, as demonstrated in the chart below:
The ECB finally began to concrete their position on interest rates last week. Christine Lagarde appeared on Bloomberg heavily suggesting that conditions are right for a rate rise as of the July meeting on 21st July. She also made her position clear that the ECB are ready to move away from their negative interest rate policy by September.
The above implies that we should expect to see interest rate rises from the bank in both July and September, and marks quite a change in stance from the ECB if these do materialise. The Euro had a strong week versus the Dollar, primarily based on the above.
On the American side of the equation, the minutes from the latest Federal Reserve meeting were released on Wednesday evening UK time. In line with expectations, the Fed are still intending to raise rates by 50 basis points in at least their next two policy meetings. The aggressive hiking of rates is intended to then give them the ability to pause later in the year if inflation fears start to subside. Many members of the committee already think that inflationary pressures have started to slow.
Overall, GBP enjoyed a positive week against the USD as shown in the chart below:
Meanwhile over the other side of the world in New Zealand we saw a further rate hike, also to control inflation. The RBNZ (Reserve Bank of New Zealand) have moved their key interest rate to 2%, its highest since late 2016, and also forecast over 3% this year as a target. Another sign of the rapid policy changes central banks are having to implement to control inflation, which the RBNZ forecast to peak at 7.0% in June.
The week ahead:
Monday – US BANK HOLIDAY
Tuesday – Eurozone CPI Flash Estimate (10am UK time)
Wednesday – Eurozone & UK Manufacturing Data (8am to 9:30am), Eurozone Unemployment Rate (10am), ECB President Lagarde Speech (midday), Canadian Interest Rate Announcement (3pm), Fed Beige Book (7pm)
Thursday – UK BANK HOLIDAY
Friday – UK BANK HOLIDAY, Eurozone Retail Sales (10am) US Non-Farm Payrolls (1:30pm)
So, a very short week lies ahead, filled with a variety of bank holidays. Monday is a US Bank Holiday for Memorial Day, which will mean any USD payments will be delayed clearing until the following day. Tuesday is a relatively quiet day also, with just inflation data from the Eurozone, forecast to nudge up slightly from last month’s 7.5% to 7.7%.
Wednesday is the major day of the week, providing a raft of manufacturing data for the Eurozone and UK. Hopefully the manufacturing sector is holding up better than the UK services sector performed in last week’s figures.
The Eurozone information comes in the form of their unemployment figures at 10am, followed by a speech by Christine Lagarde at midday. The ECB have been much more forthcoming with their forward guidance of late, so it may be that we get more clues from the ECB President on this occasion too.
The Reserve Bank of Canada are widely expected to raise interest rates again by half a per cent on Wednesday afternoon, with the day completed by the Fed’s Beige Book at 7pm UK. Again, this release may give us further clues as to the stance of Powell & Co going forwards.
PLEASE NOTE: Thursday and Friday are Bank Holidays in the UK for the Queen’s Platinum Jubilee weekend. As a result, the Aston offices will be CLOSED on these days.
The week is rounded off by the US jobs report, in the form of Non-Farm Payrolls. After a strong 428,000 jobs were added last month, expectations are for a slight slowdown to 325,000 for this month.
So, a short week but often those are the most volatile. If you have any requirements on the horizon, do reach out to the team in the usual way. For all our clients in the UK, do enjoy the Platinum Jubilee celebrations!
Have a great week.