S&P 500 Reacts Positively to Declining Inflation

Yesterday's news showed that the consumer price index fell to 4.9%. The last time inflation was below 5% was in May 2021. Thus, the Fed has received new evidence of success in its fight against rising prices, and market participants now expect that a halt will be made in a series of interest rate hikes.

Sunset Market Commentary

The Bank of England as expected raised the policy rate by 25 bps to 4.50% in 7-2 vote. Reasons for the hike are obvious: inflation is more than fivefold the 2% target. Recent data even forced the BoE to lift the path again. Prices in 2023Q4 could still rise 5.1% vs 3.9% expected in February. Pressures should have eased to 2.3% (vs 1.4%) end next year before dropping sub 2% in the subsequent period running through 2026Q2.

Weak Chinese Inflation is Bad for the Markets

China’s consumer inflation slowed to just 0.1% y/y in April, down from 0.7% the previous month and the expected 0.3%. This is the lowest rate since February 2021, when the lockdown impacted prices. However, the situation is more alarming in this case as producer prices continue their downward trend.

Bank of England Review

In line with our expectation, the Bank of England (BoE) hiked the Bank Rate (key policy rate) by 25bp to 4.50% with 7 members voting for a 25bp hike and two members voting for keeping the Bank Rate unchanged.

Dollar Rallies Above Key Technical Level Despite Soft Inflation, Jobs Data

Looking at the EURUSD chart, it looks like the failure to clear the 1.10/1.11 offers now leads to a toppish sentiment, and that we could see a further downside correction in the EURUSD before a rebound to bring us to the 1.12 medium term target area.

Cliff Notes: Budget Relief Delivered as Weakness in Consumption Crystalises

This week, Australian Federal Budget 2023/24 gave the market a lot to consider regarding Australia’s outlook. Offshore, policy expectations remained the focus.

China Equities Bulls in Need of Fresh Liquidity

In the past week, the performances of the benchmark China stock indices and its proxies have underperformed the rest of the world. In terms of week-to-date returns at this time of the writing, the CSI 300 and China A50 have recorded losses of -1.10% and -0.90% respectively that versus the MSCI All-Country Word Index ETF at -0.40%.

US Debt Ceiling Meeting Postponed, and That's Good News?

US President Joe Biden was scheduled to meet again today with congressional leaders to talk about resolving the debt ceiling. But it was abruptly postponed, without a reason given. A few hours later, it was reported that the delay was because staff discussions had made some progress. A new meeting is scheduled for next week, potentially so the leaders can announce the progress made by staff. Although, many in the markets remain skeptical.

NZ Dollar Slide Continues as Inflation Expectations Ease

The New Zealand dollar is getting pummelled by the US dollar and is trading at 0.6240, down 0.93% on the day. This follows a drop of 1.07% on Thursday.

GBP/USD Flat as UK GDP a Mixed Bag

In the UK, GDP declined by 0.3% in March m/m, below the 0.1% estimate and the February reading of 0.0%. Still, the economy managed to gain 0.1% in the first quarter, unchanged from Q4 2022 and matching the estimate.