Fed Minutes Pose More Questions Than Answers

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28/05/2024
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Fed Minutes Pose More Questions Than Answers

Global equities succumbed to a modest loss last week whilst bond yields edged higher. US markets were flat; the S&P 500 posting a positive return of just three basis points, whilst European markets closed marginally lower.

The Federal Reserve released the minutes of its May 1st meeting with the detail somewhat more hawkish than markets expected, countered by a dovish tone in the subsequent press conference as Fed Chair Jerome Powell played down the prospect of further rate hikes. Markets are currently fully pricing in only one rate cut before the end of the year. From a week ago, the yield on benchmark 10-year US Treasuries rose 5 basis points to 4.47% at Friday’s close, having spiked during the week on the release of preliminary purchasing managers’ indices (PMI) for May which jumped to the highest composite reading in two years.

In the UK, Prime Minister Rishi Sunak on Wednesday unexpectedly called a general election for July 4th, despite his Conservative Party is trailing badly in opinion polls. Sunak isn’t required to hold an election until January.  Prior to this, UK inflation data showed a drop in the Consumer Price Index (CPI) to just 2.3%, though this was smaller fall than forecast.   June rate cut expectations at the Bank of England have been increasingly priced out and the election date effectively confirms that the earliest opportunity for a lower interest rate will now be the August policy meeting. 

The price of a barrel of West Texas Intermediate crude oil slipped nearly $2 to $77.25. European gas prices meanwhile saw a significant jump as concerns over Russian supply cuts resurfaced. Austrian energy company OMV warned there was a risk that Russian pipeline flows to Austria could be halted after a court ruling could block payment for natural gas delivered by Russia’s Gazprom. Russia supplies more than 90% of Austrian gas which is significantly greater than the average EU country with many others having stopped purchases since the energy crisis in 2022.

Week Ahead

Day Country Measure Period Forecast Previous
Monday N/A - - - -
Tuesday Japan Bank of Japan Core CPI Inflation YoY April 2.30% 2.20%
Wednesday US Federal Reserve Beige Book April - -
Thursday Europe Unemployment Rate April 6.50% 6.50%
  US GDP 2nd Estimate Q1'24 1.40% 1.60%
  US Pending Home Sales YoY April 0.30% 3.40%
Friday China Composite PMI May - 51.70
  Europe Flash CPI Inflation YoY May 2.50% 2.40%
  Japan Industrial Production YoY April 1.50% 4.40%
  Japan Retail Sales YoY April 1.80% 1.20%
  Japan Unemployment Rate April 2.60% 2.60%

Source: Refinitiv Workspace, 28/05/24

 

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SJP Approved 28/05/2024