A slight rebound after yesterday's horror show, which was the worst one-day fall in nine months. Today, the FTSE 100 and Dax are up around 0.5 per cent while shares in Paris are 1.2 per cent higher, so a decent rebound amid some mixed inflation news in the UK. Wall Street was mixed with the Dow Jones up a bit and S&: 500 down a bit, now decisively below its 50-day SMA for the first time since early November.
UK CPI inflation declined to 3.2 per cent in March, down from 3.4 per cent in February. But this was less of a drop than expected. Core was more encouraging still even if it’s not quite as much of a decline as expected – down to 4.2 per cent from 4.5 per cent. Andrew Bailey speaks today. Hermione Taylor has more on that here
Meanwhile, Federal Reserve chair Jerome Powell said it's likely to “take longer than expected" for the committee to be confident inflation will return to target. That of course is after last week’s hotter-than-expected CPI inflation print. He said the Fed could keep rates steady for “as long as needed”: so we’re officially back to higher for longer and the chances of a June cut are evaporating. He also said that 12-month core PCE was likely to be little changed at 2.8 per cent.
We have been saying for ages that inflation would be higher for longer – the whole lumpy disinflation argument, structurally higher due to supply chains, deglobalisation, de-anchoring of expectations, fiscal stimulus etc etc. The question mark was always over the reaction of the central banks – spooked by the recent uptick in the US inflation rate, they may be moving to tacit acceptance of inflation being higher for longer, a little more slowly than I had thought. Markets indicate a roughly 15 per cent chance of a cut in June – down from 60 per cent a month ago. Remember however that the Fed has twice raised its core PCE outlook while still sticking to cuts, but the messaging from Powell is pushing out any cuts to later in the year. Meanwhile, the ECB is sticking to the June cut and talking about disinflation. Bank of America reckons the Fed is not so far above neutral: “We expect the terminal rate to be 3.5-3.75 per cent in this cutting cycle, up 50bp from our previous forecast.”
Higher for longer is pushing up the USD and pressuring risk. USDJPY has risen close to 155 and the BoJ may be about to intervene. Overnight we have heard the usual jawboning but nothing concrete as yet. EURUSD has come up a bit off a 5-month low struck yesterday, whilst GBPUSD has had a stronger bounce after the UK data.
The Trader is written by Neil Wilson, chief market analyst at Finalto
