Daily Brief

Skittish markets persist

Stronger UK Inflation

The most recent rally for the pound ran into trouble yesterday morning, after the latest UK inflation figures were released. CPI inflation rose from 7% in march to 9% in April, putting the UK at the very the top of the most unwanted league amongst G7 countries. Whilst the headline change may have actually been a smidgeon below the 9.1% estimates, that news will hardly encourage a Mexican wave down at the BoE, as a rapid slowdown in growth accompanies a massive increase to the cost of living.

It's not my fault

UK Chancellor, Rishi Sunak, released a statement largely blaming energy prices for the increased inflation, but he did say that ‘we are providing significant support where we can, and stand ready to take further action’. In fairness to Rishi, that 54% increase (in April) in the energy price cap, attributed to nearly 75% worth of the hike for that particular month. However, prices have been climbing across all sectors, and as we said yesterday, workers are now holding out for higher wages. That is resulting in a build-up of available vacancies, which are now outstripping available jobseekers.

That’s why the pound slipped

Whilst sterling had benefitted from the previous day’s employment data, that all unfolded alongside a broader risk-off market yesterday. The moves were not too dramatic, with GBP/USD only slipping back from 1.2500 to the 1.2350 region. GBP/EUR drifted 30 pips either side of 1.1800 for the most part. Friday’s UK Retail Sales will garnish much attention given the recent economic slowdown, to see whether those hefty inflation figures transmit into a consumer that is now spending less, much more often.

Inflation is everywhere

The latest Canadian inflation figures were released yesterday too. Much the same as in the UK, Canadian inflation is also on the increase, albeit at a slightly less aggressive pace. Annual inflation rose by 6.8% (Apr), which exceeded estimates of 5.7%. The monthly increase was 0.6%, also above estimates of 0.5%. The core (ex food & energy) reading now sits at 5.7%, versus an estimate of 5.4%.

What about the Loonie?

The Loonie rallied on the data, with USD/CAD slipping back toward 1.2800, having been over 1.3000 this time last week. The spike in Oil prices have played their part here too. GBP/CAD moved back under 1.5900. Of course, markets will feel that these lofty inflation figures will just add to the BoC’s hawkish stance on rates, and given the strong Canadian economy, they look to have that luxury at the moment. However, markets are becoming ever more sensitive to the prospect of weaker global growth and the potential for a broader recession. Stagflation is now being banded around as much as Transitory was last year. On this basis, and much the same as the Fed, the BoC may ultimately decide that they need to front-load their rate hikes.

Nervy markets lift the dollar

The dollar capitalised on those nervy markets, with the DXY moving back over 103.50, having gradually moved lower over the previous four days, after recording a cycle high. The latest Building permits and Housing Starts reflected a slight moderation, with a 3.2% decline (MoM). U.S Housing data needs to be closely monitored, given the sensitivity to interest rate changes for the sector. EUR/USD hugged the 1.0500 area, with the latest HICP inflation for the region coming in just under expectations of 7.5% at 7.4% (YoY/Apr).

What else is happening today?

Euro-area Current Account, ECB Monetary Policy Meeting Accounts, Canadian New Housing Price Index. U.S Weekly Jobless Claims and Existing Home Sales, and just before bedtime, the Latest New Zealand Import/Export and Trade Balance.

 

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