Good morning,
GameStop soared on Monday, rocketing 110% before settling up 75%, all thanks to “Roaring Kitty.” Keith Gill, the catalyst of the 2021 meme stock frenzy, posted on X for the first time in years, reigniting the mania. His single meme sparked a wave of buying, crushing short sellers and pushing GME past $30 per share. The excitement spilled over to other meme stocks like AMC, which jumped 50%. Roaring Kitty’s return has shown that the meme stock magic is still alive and kicking.
Last Week
US economic data missed expectations, with softer retail sales and weaker-than-expected inflation figures putting rate cuts back on the agenda. Federal Reserve Chair Jay Powell had reassured investors that the central bank was not planning to raise interest rates, highlighting the restrictive stance of current policy. US CPI inflation rose just 0.3% month-on-month in April, below expectations and March’s 0.4%, renewing hopes that early-year inflation spikes were transitory. Consequently, US stocks hit record highs, buoyed by expectations of rate cuts. High-beta currencies like AUD, NZD, GBP, and EUR gained against the dollar and Swiss franc. The benchmark S&P 500 and Nasdaq Composite both closed at record peaks, with technology, real estate, and healthcare leading gains.
The latest UK labour market figures reveal a cooling jobs market, translating into lower wage growth, in line with recent Bank of England messaging. Headline employment data, including the uptick in the unemployment rate to 4.3%, remains unreliable due to declining survey response rates. However, the broader report supports a softening trend, with vacancies down and the job openings-to-unemployed ratio nearing 2019 levels. Official payroll data indicates flat to slightly negative employment growth this year. With prospects of a BOE rate cut next month at around 50/50, sterling is expected to trade choppily around key data releases. Hedging some exposure as a sterling holder is advisable.
The euro’s uptrend against the dollar looks increasingly sustainable, brightening its prospects against sterling, with the Bank of England edging closer to a June rate cut with odds just over 50%. This potential cut, alongside signals from key MPC members like Huw Pill, could weaken the Pound further. Meanwhile, the Euro remains relatively insulated with the European Central Bank’s moves fully priced in. Derek Halpenny of MUFG Bank recommends a long EUR/GBP trade, reflecting downside risks for the Pound. As the Euro gains strength against the dollar, the GBP/EUR outlook appears increasingly favorable for the Euro.
This Week
The UK is set to release a flurry of data this week, with inflation, PMIs, and retail sales all under scrutiny. Headline CPI dropped to 3.2% in March, the lowest since September 2021, and April is expected to see further declines, potentially nearing the Bank of England’s 2.0% target due to the base effect from energy price cap changes. While policymakers remain cautious about a possible inflation resurgence, hints of a summer rate cut have emerged. Investors are increasingly betting on a June cut, with odds just over 50%. May’s flash PMIs and Friday’s retail sales data will further highlight the UK’s rebounding growth. This brighter outlook could sustain the pound’s rebound against the dollar, especially if the Fed is also pressing ahead with rate cuts.
The Eurozone’s flash PMIs, due Thursday, will be the main focus this week for the bloc. Both services and manufacturing PMIs are expected to have risen slightly in May, with the composite PMI moving further above the key 50.0 mark. Having exited a shallow recession in the first quarter, the Eurozone’s growth prospects appear to be strengthening. Although a June rate cut by the ECB seems certain, stronger-than-expected PMI figures could dampen expectations of further cuts, boosting the euro. Conversely, softer PMI readings could undermine the euro’s rebound against the dollar as investors anticipate deeper rate cuts. This data will be crucial in shaping the near-term outlook for the euro.
Key Events
Tuesday 21st May
13:30 Canadian CPI
18:00 BOE Gov Bailey Speaks
Wednesday 22nd May
15:00 New Zealand Rate Statement
19:00 US FOMC meeting minutes
Thursday 23rd May
08:15 French PMI
08:30 German PMI
09:30 British PMI
13:30 US Unemployment Claims
14:45 US Manufacturing & Services PMI
Friday 24th May
07:00 Retail Sales
15:00 UoM Consumer Sentiment
Have a great week
The Garton Team