The Bank of England raised its bank rate 25bp to 4.5% as expected yesterday. The Bank maintained the guidance that further tightening would be required “if there were to be evidence of more persistent inflation pressures”, indicating it is open to a further rate hike in June. The BoE’s growth forecast was also revised higher, with the Bank no longer anticipating a recession in the UK economy this year, and inflation is expected to fall at a slower pace than in the February projections. Wage inflation is also expected to remain elevated this year. The MPC vote was split 7-2 with no members voting for a 50bp hike. The market is pricing another rate hike this year to 4.75%.
Initial jobless claims in the US rose by more than expected to 264k in the week to 6 May, the highest level of initial claims since October 2021. Continuing claims also increased by 12k to 1.81mn in the week to 29 April. While the data is volatile, the 4-week moving average of initial claims has trended higher, provided some further evidence of softening in the labour market.
US producer inflation rose 0.2% m/m and 2.3% y/y in April, lower than the market had expected. Core PPI (excluding food and energy) was higher at 3.2% y/y, down from 3.4% in March.
Today’s Economic Data and Events
- 10:00 UK Industrial production (Mar) forecast -2.9% y/y
- 10:00 UK Manufacturing output (Mar) forecast -2.5% y/y
- 12:00 UK Q1 GDP forecast 0.1% q/q and 0.2% y/y
- 18:00 US University of Michigan Consumer Sentiment (May) forecast 63.0
Fixed Income
- Weaker than expected US producer price inflation, together with stronger initial jobless claims data, pushed US Treasuries higher on Thursday. Yields on the 2yr UST fell marginally to 3.899% from 3.910% the day prior. While the 10yr UST yield fell 6bps to 3.384%.
- European bond markets also closed higher on Thursday. The 10y Bund yield dropped a further 6bps to 2.222% from 2.285%, while 10y Gilt yield fell almost 9bps to reach 3.705%.
FX
- The Dollar was stronger against both the Euro and Sterling by the end of the day on Thursday. The EURUSD ended the day at 1.0916, down 0.6%, while GBPUSD fell 0.9% to close the day at 1.2511.
- In commodity currencies, USDCAD moved higher by 0.9% to 1.3491 while AUDUSD fell 1.1% to 0.6702.
Equities
- There was little strong movement in either direction for the major equity markets yesterday. In the US, the NASDAQ managed to secure a 0.2% gain but both the S&P 500 (0.2%) and the Dow Jones (0.7%) closed down.
- In Europe, the CAC added 0.3% but the FTSE 100 dropped 0.1% and the DAX ended the day 0.4% lower.
- Locally, the DFM lost 0.1% and the ADX 0.6%.
Commodities
- Oil prices were under pressures yesterday, as Brent crude closed down 1.9% to USD 74.98/b and WTI dropped 2.3% to USD 70.87/b. Both benchmarks are trading down modestly in early trading also. Weakening economic data from China and the US over the past week has raised questions around demand durability once more.
- This has offset an announcement by US energy secretary Jennifer Granholm that the US could start refilling the Strategic Petroleum Reserve by June.