Macro

UK:

Market expectations of further interest rate hikes in July were bolstered by a recovery in UK economic growth and stronger-than-expected labor market data. The economy experienced a sequential growth of 0.2% in April, rebounding from a 0.3% contraction in March. The increase was driven by the higher output in consumer-facing services, car sales, and education. Additionally, average wage growth, excluding bonuses, rose to 7.2% in the three months leading up to April, while the unemployment rate declined to 3.8% after a slight increase to 3.9% in the previous three months. Bank of England Governor Andrew Bailey acknowledged the tight labor market but also noted that inflation was taking longer to come down than anticipated.

EU:

The European Central Bank (ECB) raised its key deposit rate by 0.25% to reach 3.5%, the highest level in 22 years. ECB President Christine Lagarde stated that policymakers believed there was still progress to be made and indicated the likelihood of a further tightening of borrowing costs in July unless there was a significant change in the outlook. The ECB also revised its forecasts for headline and core inflation over a three-year period, strengthening the case for continued monetary tightening. As part of its balance sheet reduction efforts, the ECB confirmed that it would cease reinvesting the proceeds from its asset purchase program starting in July. Industrial production in the eurozone experienced a stronger-than-expected rebound of 1.0% in April, driven by a notable increase in capital goods output. Additionally, German investors displayed slightly less pessimism in June, with the ZEW economic sentiment index improving to -8.5 points from -10.7 points in May.

US:

Multiple indicators suggested that the US economy was undergoing a “Goldilocks” expansion characterised by sustained growth and decreasing inflation. The consumer price index, released by the Labor Department, showed a year-over-year increase of 4.0%, still above the Federal Reserve’s target but lower than the previous month’s 4.9% and the slowest pace since March 2021. Producer prices, on the other hand, declined by 0.3% in May, with four decreases recorded in the past six months. While falling producer prices were partly attributed to a contraction in the manufacturing sector and a significant drop in food and gasoline prices, retail sales demonstrated positive performance. Overall, retail sales rose by 0.3% for the month and by 1.6% over the past 12 months, marking the first year-over-year increase since January. Excluding volatile segments like automobiles and gasoline, sales increased by 0.4% in May. The University of Michigan’s consumer sentiment index exceeded expectations, reaching its highest level in four months. Weekly jobless claims remained unchanged, contrary to expectations of a decline from the previous week’s 20-month high. Despite a somewhat hawkish outlook from Federal Reserve policymakers, the encouraging inflation data may have helped investors absorb the news. While the official federal funds target rate was maintained at 5.00% to 5.25%, the median rate projection in the “dot plot” indicated a potential two more quarter-point rate hikes by the end of the year, suggesting a temporary pause rather than a prolonged halt to the rate-hiking schedule.