Week in review
- Bank of England held rates steady
- U.S. initial jobless claims at 238K, in-line with consensus
- Headline May retail sales rose 0.1% m/m, lower than consensus
Week ahead
- U.S. real GDP, consumer confidence, new home sales
- Japan retail sales, unemployment rate
- Taiwan industrial production
Thought of the week
The Bank of England (BoE), as widely expected, held rates steady at 5.25%, the highest in 16 years. Markets generally interpreted it as a dovish hold, sending short term Gilt yields lower and UK stocks higher. For one, the Committee said it will consider “all of the information available” instead of previously “forthcoming data releases”, hinting the significant disinflation progress so far is important, even if there are one-off upside surprises in the months to come. This potentially lowers the bar for an August cut. Moreover, the policy decision was described as “finely balanced”, which suggests further evidence of disinflation progress could easily tip the balance towards a rate cut. But will it come easy? UK headline inflation has impressively fallen back to the Bank target of 2% in May for the first time in almost 3 years, but that was not enough for the BoE. Year-over-year services inflation in April and May were too sticky, at 5.9% and 5.7%, versus BoE projection of 5.5% and 5.3% respectively. Wage growth has also remained elevated, delivering consistent upside surprises. Markets are now pricing a 50-50 chance of August being the first cut, with September being close to fully priced. With the June decision “finely balanced”, services will be the line in upcoming inflation prints that markets will be hyper- focused on to see whether BoE will join Bank of Canada and European Central Bank in cutting before the Federal Reserve does.
UK services inflation remains sticky while goods inflation has fallen materially
Year-over-year inflation rate (%)
Source: LSEG Datastream, ONS, J.P. Morgan Asset Management. Data reflect most recently available as of 21/06/24.
Market data
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