Focus this week on US inflation data

In what was a very quiet week for economic data, the Bank of England MPC meeting on Thursday created a flurry of excitement as the door was opened to a possible cut in UK interest rates next month. The impact on sterling was marginal enough though, with the pound closing out the week only slightly lower against the euro and the dollar from the previous Friday’s close. It is trading at around 86p and $1.2525 respectively this morning, while the euro is trading at around $1.0770 against the dollar having made modest gains over the second half of last week.

In government bond markets, UK 2- and 10-year yields fell by around 5bps last week, while equivalent US and German yields nudged up slightly. In equity markets, European stocks outperformed, gaining around 3% on the week, while US indices added almost 2%.

Fed Governor Bowman says the central bank should proceed “carefully and deliberately” in order to achieve its 2% inflation goal, adding that she hasn’t “written in” any interest rate cuts for 2024, while her Fed colleague Logan says it’s still “too early to think about cutting rates”

The key economic data release this week is the US CPI inflation report for April on Wednesday. Recent inflation readings have been higher than expected, with the headline rate nudging up for a second consecutive month in March and the decline in the core rate stalling.  The consensus expects both headline and core inflation to have edged down in April, to 3.4% and 3.6% respectively from 3.5% and 3.8% in March.

Other data of note this week include the Q1 labour market report in the UK on Tuesday, with most attention likely to be on the latest wage growth numbers, and producer prices (Tuesday), retail sales (Wednesday) and industrial production (Thursday) in the US. There is also a large number of Fed and ECB members due to speak over the course of the week.