Bank of England meeting today but no change expected
It was a quiet day on the data and news front yesterday and the single currency traded in a narrow range for most of the day, up towards $1.075 for a time but is back down to around $1.073 to the dollar this morning and remains around 85.5p to sterling. The UK currency did get a small boost yesterday morning, following the May UK CPI print coming in at the Bank of England target of 2%, but slipped back again over the day and it is back trading at just above $1.27 this morning. The main event today will be the Bank of England MPC meeting though no move from them is expected.
Government bond yields ticked up a few bps yesterday. 10-year UK yields were up 2bps to over 4.05%, 10-year German yields were up 1bp to 2.4% and French 10-year yields were up 3bps to nearly 3.2%. US 10-year yields were more or less unchanged at just over 4.2%. Yields are ticking up again on the open this morning. Euro equities failed to build on two days of gains at the start of the week with the Eurostoxx down 0.6% for the day yesterday while in the US the tech inspired rally continued with the S&P 500 up close to 0.3% on the day.
The Bank of England MPC meets today but no change in policy is expected. MPC members have mostly refrained from commenting on the interest rate or economic outlook while the UK election campaign is ongoing so an unexpected change in policy today is quite unlikely. The Committee will be absorbing the latest data which shows that headline inflation is back, at least for the moment, at the 2% target although underlying services inflation is running at 5.7%, and not easing as fast as expected, while wage growth is running at around 6%. Economic growth has picked up and is running at 0.7% in April (3 months/3 months) but the labour market has weakened with the unemployment rate picking up to 4.4% in April. The Committee would like to see more data before acting and should continue to signal that stance in any communications post today’s meeting. The market has been pushing out the first rate cut by the MPC and it is now not fully priced in until November.
In the UK, house prices rose by 1.1% year-on-year, the second consecutive month of annual gains following 8 months of declines. The monthly pace of increase also picked up, to 0.3% from 0.1% the previous month. The improvement in the housing market is all being driven by regional growth outside of London with the highest annual increases being recorded in Scotland (4.5%), Northern Ireland (4.0%) and the North West (3.8%). However, prices in and around London continue to slide with prices in the capital down 3.9% and also in the South East (-0.4%).
In Ireland, residential property prices continue to accelerate. Property prices rose by 0.4% in April taking the annual rate to 7.9%. House prices are picking up against a background of a lack of housing to meet demand but driven by rising earnings and employment and a degree of higher leverage among first time buyers. The gains in house prices are broad based with prices increasing by 8.3% in Dublin and by 7.6% outside the capital.
Portuguese Central Bank Governor Centeno was out to say that the interest rate cycle is evolving and ‘rates will fall if inflation helps us, which it’s doing’. Centeno has been one of the more dovish ECB members but he has moderated his comments somewhat in his most recent statements. Yesterday he said that there should not be a return to the very loose monetary policy that was in place until the recent spike in inflation. He said ‘ideally’ rates would not go towards zero and it would be a ‘very bad sign’ if that were to happen but the ‘ideal would be for interest rates to approach 2%’. The ECB appears to be in a patient mood as it awaits more data before following up on June’s rate cut. The consensus view is that another move will not be considered until September’s meeting.
Economic data due today includes housing starts in the US and the Philly Fed outlook while we also get the flash consumer confidence reading for the Euro Area. The Fed’s Kashkari and Barkin are due to comment on the economic outlook while the Bank of England decision is due at noon.