LAST WEEK – KEY TAKEAWAYS

UK INFLATION SLOWDOWN REDUCES LIKELIHOOD OF A SUMMER INTEREST RATE RISE

• UK consumer price inflation (CPI) unexpectedly fell to 2.4% in April, according to the Office for National Statistics (ONS).

• The figure fell from the 2.5% registered in March, due in part to lower airfares.

• The Bank of England delayed a rate hike earlier in May, and is considered unlikely to move again in the near term.

• The Omnis view: while the headline inflation figure remains above the Bank of England’s stated 2% target, higher interest rates would place an extra burden on the UK’s fragile economic growth.

MINUTES SUGGEST FED IS ON TRACK FOR SLOWER PACE OF RATE HIKES

• Minutes from the May meeting of the Federal Open Market Committee (FOMC) suggest it would “soon be appropriate” to hike rates should the current outlook remain intact.

• A move in June is likely, with inflation currently above the target level and unemployment at low levels.

• Nonetheless, the minutes were interpreted as “dovish”, with the FOMC expressing a willingness to allow the inflation rate to rise above the “symmetric” 2% target for a “temporary period” while the economy continues to expand.

• The Omnis view: the dovish interpretation of the minutes has lowered expectations of a further four rate hikes this year. The market now thinks three hikes more likely. A steadier pace of hikes from the FOMC should reduce the potential for significant market disruption. 

RISE IN FRENCH UNEMPLOYMENT A BLOW FOR MACRON REFORM

• Unemployment in France rose slightly in the first three months of the year from 9% to 9.2%, according to national statistics office Insee.

• President Macron had hoped that changes to employment law would bring the jobless total down.

• IHS Market’s composite purchasing managers’ survey showed French business activity slowed more than expected in May, falling from to 54.5 from 56.9 in April.    

• The Omnis view: while progressive reform is important for the long-term future of France and the eurozone, a more immediate concern is whether the data points to a marked downturn in the European economic cycle. For now, however, the slowdown in Europe appears temporary.

GERMAN CONSUMER SENTIMENT FALLS, BUT BUSINESS CONFIDENCE HALTS SLIDE

• GfK’s consumer sentiment indicator, a survey of around 2,000 Germans, slipped to 10.7 points in June from 10.8 in May.

• Private consumption has become the main source of economic expansion in Germany in recent years.

• The Ifo Institute’s showed business confidence halted a five-month slide, holding at a measure of 102.2 in May.

• The Omnis view: investors are wary of any signs of slowdown in the eurozone’s largest economy. However, the German economy remains robust and capable of withstanding a temporary slowing of growth.

‘WILL THEY OR WON’T THEY’ DRAMA IN TRUMP AND KIM JONG-UN TALKS

• Having been cancelled, there are now indications that the Trump-Kim summit scheduled for 12 June may in fact go ahead.

• Trump said that his administration has restarted dialogue with Pyongyang, having previously withdrawn from the talks given Kim Jong-un’s “tremendous anger and open hostility”.

• The US and its international allies, such as South Korea and Japan, have tried to isolate North Korea economically to force its leader to abandon his nuclear ambitions.

• The Omnis view: while this saga is likely to drag on to 12 June and beyond, it has had little impact on markets.

LOOKING AHEAD - TALKING POINTS

SLEW OF DATA RELEASES DUE FROM THE US 

• Economists expect the non-farm payroll report to show an uptick in wages and the pace of hiring, while there are also updates on consumer confidence, personal income and mortgage applications.

• The US economy added 164,000 jobs in April and this is expected to have risen in May, while the unemployment rate is estimated to remain steady at 3.9%.

• Personal income data for April is expected to rise at a similar month-on-month rate as in March, when it climbed by 0.3%.

• The Omnis view: positive data points would help ease concerns over slowing global growth that have gripped markets in recent weeks. This in turn would focus the attention back on the Federal Reserve.

US UNEMPLOYMENT RATE (%) – MAY 2017 TO APRIL 2018 

Source: US Bureau of Labor Statistics, tradingeconomics.com

NEW NAMES EXPECTED IN FTSE 100 QUARTERLY RESHUFFLE

• The make up of the index, which is home to the UK’s 100 largest listed companies, is reviewed on a quarterly basis.

• Any company that falls to 111th and below is automatically ejected from the index, while any firm that rises to 90 or above is automatically promoted.

• Online grocer Ocado Group is expected to make its FTSE 100 debut, while mainstay Marks & Spencer could be demoted.

• The Omnis view: while the ins and outs of the FTSE 100 is not of great concern to long-term investors, the rise and fall of certain UK companies, particularly retailers, can be an important gauge of wider economic trends.

FTSE 100 – MAY 2015 TO MAY 2018

Source: London Stock Exchange