Morning Brief – UK rate decision in focus

The moves following the US inflation report continued to unwind, with major FX seeing more US dollar strength and stock market futures remaining well supported.

On the Asian the data front we had CPI inflation data from the China economy published. Data showed that Consumer level prices eased further in April, to their lowest y/y since February of 2021.

Also Producer level prices (PPI) slumped deeper into deflation, showing their biggest decline since May 2020. It appears China will be exporting de/dis inflation for a while.

Basically, these very low readings on inflation pave the way for more stimulus, both monetary and fiscal, should Chinese authorities want to go down that path.

On central bank news we had the Bank of Japan ‘Summary of Opinions’ from the most recent meeting in late April. Many board members saw the need to keep monetary policy ultra-loose for the time being.

It added that “Some added that they saw growing signs of progress towards sustainably achieving 2 per cent inflation”. No major moves in the Japanese yen after this.

Ahead of the UK central bank report we saw the NIESR release data which showed the estimated annual consumer price inflation will be 5.4% in the final quarter of 2023, this is well above forecasts from the Bank of England of 3.9%

The NIESR projected full-year consumer price inflation would be 7.4% in 2023 and 3.9% in 2024. The NIESR expects the BoE to raise its key interest rate later on Thursday to 4.5% from 4.25%, in what would be its 12th consecutive rate increase.

Later today the Federal Reserve Bank of Minneapolis President Neel Kashkari participates in conversation before the Invest UP Summit and Federal Reserve Board Governor Christopher Waller speaks on “Financial Stability and Climate Change” before the “Current Challenges in Economics & Finance” conference organized by the Federal Reserve Bank of St. Louis, Banco de España, and IE University.

The April CPI report on Wednesday reignited thoughts of Federal Open Market Committee (FOMC) rate cuts this year. It may be wishful thinking but let’s see if either of these two gives hints that way.