Sentiment started tentatively this week as the market digested slow import data out of China and whether or not the Fed really has announced an unofficial ‘pause’ on rates. US inflation data came in lower than expected and that helped the narrative that the Fed could pause rates next month. The BoE hiked by 25 bps to 4.50% as expected, but it is hard to see the BoE going much higher than 4.75% as the UK economy struggles with millions of homeowners facing higher mortgage rates. However, with the UK still seeing double-digit inflation the BoE may have no choice in June’s meeting.
Other key events from the past week
- China: Growth narrative falters, May 9: China’s imports fell -7.9% y/y. This was well below economists’ minimum expectations & shows China’s recovery is not as fast as some analysts were hoping. Exports, however, were up 8.5% y/y.
- US inflation data: US CPI, May 10: Inflation data out of the US was hotly anticipated this week. Headline inflation came in at 4.9% y/y which was below the 5% y/y expected. Will this affirm the view that the Fed can now pause rates?
- GBP: Bank of England hikes, May 11: The BoE hiked interest rates by 25bps as expected this week and has kept the door open for further rate hikes. The BoE revised inflation higher for 2023 and 2024. Headline inflation is still projected to be above 2% in the UK next year. Are further hikes still to come?
Key events for the coming week
- CAD: Canadian inflation data, May 16: The BoC kept rates unchanged in its last rate meeting, but that is based on the view that inflation is falling. If the CAD inflation print surprises markets to the upside, watch for potential CAD upside.
- Seasonal Insights: Is PayPal’s summer seasonal pattern in play?
- AUD: Australian labor data, May 18: The RBA took a surprise interest rate hike in its last meeting, so next week’s labor data will be key in seeing whether or not the impact of rate hikes is now being seen in Australia’s labour market.