Bank of England likely to keep rates on hold today

UK inflation fell to 2.0% y/y as expected in May, down from 2.3% in April, making the UK among the first developed economies to hit its inflation target after price pressures surged in 2021 and 2022. However services inflation remains sticky, easing to just 5.7% last month from 5.9% in April, higher than markets had expected. Core inflation slowed to 3.5% y/y from 3.9% in April, as expected. The Bank of England is likely to keep rates on hold today ahead of the election in a few weeks, but may be ready to gradually lower rates from Q3 2024. We expect one rate cut next quarter and another before the end of the year.

The Swiss National Bank is expected to keep rates on hold today after cutting in March, although a weaker euro raises the probability of rate cut as the SNB is unlikely to be comfortable with an appreciating CHF.

Today’s Economic Data and Events

11:30 SNB rate decision, forecast no change at 1.5%

15:00 Bank of England MPC rate decision, forecast no change at 5.25%

16:30 US initial jobless claims (Jun 15) forecast 235k

16:30 US housing starts (May) forecast 1370k, 0.7% m/m

Fixed Income

• 10y yields rose across Europe yesterday with Italian (+5bp), Swedish (+4bp) and Greek (+3bp) benchmark bond yields rising the most. The 10y gilt yield rose 2bp to 4.07% while the 10y bund yield rose 1bp to 2.4%.
• New Zealand’s 10y yield rose 3bp this morning after data showed the economy exited recession in Q1 2024, with faster than expected GDP growth of 0.2% q/q and 0.3% y/y.

FX

• Most major currencies gained against the US dollar on Wednesday with EUR up 0.3% to 1.075 and GBP and CHF gaining 0.4% to 1.2735 and 0.8848 respectively. Commodity currencies also strengthened yesterday with AUD up 0.8% to 0.6673 and NZD rising 0.5% to 0.6137.

Equities

• US equity markets were closed yesterday. European stocks were mixed with the FTSE100 rising 0.2% while the Eurostoxx50 declined -0.6%. The CAC40 was down -0.8% on Wednesday.
• Regionally, the DFMGI and ADGI both closed higher yesterday, gaining 0.1% and 0.4% respectively. The Saudi Tadawul remains closed for Eid holidays for the rest of the week.

Commodities

• Brent oil was largely unchanged, holding above USD 85/b on Wednesday while WTI gained 1.5% to USD 81.57/b ahead of today’s EIA US inventory data release for last week.