Spreadex Market Update
Debt Ceiling Uncertainty Continues To Grow
US stocks fell sharply yesterday, leading to losses across the broader equities space, as the US continues to move towards the debt ceiling deadline without resolution. Although there is still a sense that both sides are posturing and a deal will most likely be done, the risk is growing that a miscalculation by both or either side could see an historic US debt default triggered. Additionally, Republicans are also challenging Yellen’s statement that the deadline is June 1st, arguing the real deadline is later in the month. As such, tense negotiations will likely continue leading to further downside risks for stocks near-term. Attention now shifts to the FOMC minutes due later today as traders continue to battle over whether a further hike is coming next month.
UK Inflation Falls – IMF Revises UK Growth Outlook Higher
Following the focus we’ve seen on the Fed and the ECB recently, the BOE will move into the spotlight today. The release of UK CPI for April reflected a sharp drop in inflation which cooled to 8.7% from 10.1% prior. The market had been projecting a further 2 hikes this year from the BOE. However, on the back of this data, this view has cooled a little. While a further hike in June looks likely, should inflation continue to fall at this trajectory the BOE might well look to pause after that.
Speaking yesterday, BOE governor Bailey admitted that the BOE still has a lot to learn about operating monetary policy in a world of big shocks. However, Bailey argued that some elements of inflation remaining so high have been due to food producers and retailers keeping prices at higher levels.
Finally, for the UK, there was some further good news. The IMF has upgraded its economic outlook for the UK and no longer expects there to be a recession this year. Growth is now set to hit 0.4% for the year as a whole, up from -0.3% prior.
GBP has been a little firmer today on the back of the inflation data and upwardly revised growth outlook from the IMF. The FTSE, however, has continued under pressure today against the backdrop of weaker risk appetite. The index is now down around 1.75% from the week’s highs and is now trading at fresh lows for the month.
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