Market Update

In the UK we had inflation data for April which beat expectations of 1.4%, coming out at 1.5%. This was an increase of more than double in comparison to the figures in March. The main reason for inflation increasing so much was due to a rise in energy prices not seen since the beginning of the first lockdown back in March 2020. The initial drop-off in rates off the back of this data release was influenced by fears that rising inflation could lead to The Bank of England raising interest rates to curb inflation. Many economists predict UK inflation to rise to 2.4% – 2.7% by the end of 2021 and then drop back below the 2% target moving into 2022.

Moving forward, key economic releases such as Retail Sales due out Friday will provide a bigger picture of how the economic recovery is going and will no doubt contribute towards whether the Bank of England look at tapering Quantitive-Easing first before making a decision on Interest Rates.

The USD was down against a majority of currencies as The Fed Reserve meeting minutes last night suggested that a number of policymakers believe a slowing down of Quantitive-Easing can happen sooner rather than later with inflation over shooting expectations. It’s expected that if the next set of jobs data due out on 3rd June shows a recovery against May figures then markets will start pricing in the possibility of tapering in June. The jobs sector is one of the main areas of concern for The Fed Reserve, shown in last months underwhelming employment data and the worry moving forward is the difficulty of getting people back into jobs that right now are being paid to stay at home, with an estimate that employment is still 10m jobs below pre-pandemic levels.

The Euro-Zone economy has begun to rebound from the pandemic effects seen over the past 12 months, particularly seen within the GDP figures for Quarter 1 of this year improving marginally on previous figures. Over the past 2 months there has been a gradual improvement in job openings, growth in visits to entertainment and leisure venues as well as a rise in holiday bookings all suggesting that economic activity is bouncing back. The expectation is for GDP to improve by 1.5% in the 3 months between March and June.

Key data for The Euro-Zone over the next few days will be focused on PMI data due out Friday which will give us an insight into how private sector companies within the manufacturing sector are feeling towards an economic bounce back, as well as consumer confidence for May.

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