Good morning,
Looks like pizza’s got a slice of the action in geopolitics again with the “Pizza Meter” back in the spotlight. No, it’s not about finding the perfect crust-to-topping ratio; it’s about predicting global crises! Recently, a surge in pizza orders near the Pentagon and the White House raised eyebrows, coinciding with Iran’s drone and missile tango with Israel. Who needs classified briefings when you’ve got Papa John’s on speed dial?
Last Week
Sterling endured a downward spiral last week, triggered by another member’s call to slash rates at the MPC meeting. Dave Ramsden’s alignment with Swati Dhingra in advocating for immediate rate cuts underscores a mounting consensus towards lower interest rates. However, amidst this dovish sentiment, the Bank’s statement remained steadfastly cautious, echoing concerns over persistent inflationary pressures. This dichotomy has left markets on edge, with the likelihood of a June rate cut now hanging in the balance at 50/50. As the June 20th meeting looms, Sterling is poised to endure heightened volatility, especially with two impending inflation reports poised to offer clarity. Brace for turbulence in Sterling’s journey as market data releases draw near.
Sweden’s central bank made a significant move by cutting interest rates for the first time in eight years, aligning itself with European monetary policy diverging from the US to bolster their economy. The Riksbank’s decision to lower its main interest rate by 0.25 percentage points to 3.75 per cent on Wednesday marks a historical shift, as it’s the first time such action has preceded the US Federal Reserve’s moves this century. This alignment underscores the broader trend of European monetary policymakers distancing themselves from US policy, prioritising economic support even at the potential expense of their currencies. Erik Thedéen, the Riksbank’s governor, emphasised their confidence in sustainable inflation reduction, indicating a strategic shift towards economic stability.
The Reserve Bank of Australia (RBA) kept interest rates steady this week, resisting pressure to signal an imminent rate hike despite concerns over inflationary pressures. Governor Michele Bullock remained steadfast in the face of higher-than-expected March quarter inflation, indicating that the bank’s first rate cut since November 2020 may still be some way off, possibly extending into 2025. Despite an uptick in inflation forecasts, Bullock remained unperturbed, highlighting the economy’s potential to weather the storm. The RBA’s cautious optimism extends to the labour market, with jobless forecasts revised slightly downwards amidst lingering uncertainties. While Australia’s economic resilience is commendable on the global stage, the RBA’s conservative stance reflects a balanced approach towards future monetary policy decisions.
This Week
As the Federal Reserve’s stance remains cautiously dovish, all eyes are now on the upcoming US Consumer Price Index (CPI) data for April. With Chair Powell ruling out rate hikes and suggesting a predisposition towards cuts, market sentiment remains poised for potential shifts. Minneapolis Fed President Neel Kashkari’s dissenting voice adds complexity to the outlook, hinting at a prolonged period of unchanged rates. Against this backdrop, Wednesday’s CPI release takes on heightened significance, with indications that April’s consumer prices may have softened. The possibility of a cooling inflation trend could further influence market expectations, potentially dampening Treasury yields and the US dollar. Preceding this pivotal event, Tuesday’s Producer Price Index (PPI) data and concurrent retail sales figures are poised to provide additional insights into the economic trajectory and shape expectations regarding the Fed’s future moves.
Following the Bank of England’s (BoE) unexpectedly dovish tone, with two members advocating for a 25 basis points cut, the spotlight now shifts to the UK’s upcoming employment data for March. Investors are particularly attuned to wage growth indicators, anticipating any further softening that could align with the Bank’s projections for inflation moderation. With the BoE signalling a cautious approach amidst downward revisions in inflation forecasts, Tuesday’s data release gains added significance. A potential deceleration in wages could bolster expectations for an August rate cut, amplifying the pound’s downward trajectory observed post-BoE announcement. As market participants scrutinise the data for cues on future monetary policy moves, the pound may face prolonged pressure if June emerges as a viable option for rate adjustment.
Key Events
Monday 13th of May
04:00 New Zealand Inflation Expectations
Tuesday 14th of May
07:00 GBP Claimant Count Change
13:30 US PPI
15:00 Fed Chair Powell Speaks
Wednesday 15th of May
02:30 Australian Wage Price Index Q/Q
13:00 US CPI, Retail Sales & Manufacturing Index
Thursday 16th of May
02:30 Australian Unemployment Rate
13:30 US Unemployment Claims
Have a great week,
The Garton Team.