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  • richard evans

Sun shining as UK growth exceeds expectations

Good morning

 

UK interest rates remain at 5.25% as BoE decided to keep policy unchanged.  Two members, Ramsden and Dhingra, voted for a rate cut, the remaining seven members all voted for no change,  There was a mild dovish element to the meeting, inflation is not quite at a level where they are comfortable easing rates but the feeling is we are heading that way.  As with ECB recently BoE made it clear that they can act before and separately from the Fed.  The chances of a rate cut in June are around 50/50 but a cut in August is almost fully priced in.  I have seen a couple of banks bring forward their BoE rate cut forecast this morning, UBS being one of those now looking at a June move.

 

GBPUSD had dipped briefly to 1.2450 yesterday following the announcement but soon regained any losses and by the close had pushed up to 1.2520, above the 1.2500 pre-announcement level.  This morning we had the latest UK growth figures which showed a decent bounce in the UK economy compared to the recession we entered at the tail end of last year.  A stronger than expected monthly reading of +0.4% helped push the Q1 number up to +0.6%, higher than expected and well above the -0.3% for the previous quarter.  UK’s industrial production numbers also came in well above expectations. 

 

GBP has made further gains against USD this morning as a result of the stronger data, trading up to 1.2540.  It has also made a small recovery against EUR, at one point yesterday GBPEUR was down at 1.1600, as I type it is 1.1635.  EURUSD for the record is 1.0780.

 

Yesterday we saw the release of the latest Adobe monthly digital index, some say a decent precursor to US inflation numbers.  It was down 0.46% month on month, which many are hoping could indicate a drop in next weeks US CPI release, which in turn would prompt speculation of a Fed rate cut, although it is unlikely to come before the ECB and now perhaps even BoE.

 

We’ll hear from several central bank officials today, including BoEs Dhingra who voted for a rate cut yesterday.  Expect more dovish soundbites from her.  We will also see the minutes from the last ECB meeting, it will be interesting to see whether this offers any clues as to a June rate cut but also how many cuts we could see through the rest of 2024.

 

Over the weekend we will have the latest inflation data out of China.  Perhaps more importantly, we may also see some new tariffs placed on Chinese goods by the US, Chinese electric vehicles could be one the key imports to be hit.  China stocks were a bit lower, as was CNY.  Early Monday morning we will have the latest RBNZ inflation expectations. 

 

BoE and UK GDP aside, this week hasn’t been the busiest in terms of economic data.  Next week looks a just a little more lively, with UK unemployment Tuesday, while Wednesday bring EU GDP as well as US inflation and retail sales.

 

Heading into the weekend, rather hoping this spell of warm, sunny weather can last a few more days.  Spurs take on Burnley on Saturday, the big match over the weekend will be Arsenal v Man Utd, as the title race nears its end.  Spurs v Man City on Tuesday evening will be an interesting one, with Arsenal fans potentially having to cheer on Spurs to keep their title hopes alive.

 

I’m off into the City today so I’ll leave it there.  Have a superb weekend, enjoy the weather, nothing like feeling that bit of warmth on your face. 

 

-  09.45 ECBs Eldreson speaks

-  12.15 BoEs Pill speaks

-  12.30 ECB minutes

-  12.45 BoEs Dhingra speaks

-  13.30 CAD unemployment

-  14.00 Feds Bowman speaks

-  15.00 US Michigan sentiment survey

-  15.00 Feds Kashkari, Logan speaks

-  17.45 Feds Goolsbee speaks

-  18.00 Feds Kashkari speaks

-  18.30 Feds Barr speaks

-  19.00 US monthly budget statement

 

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