Macro

UK:

In April, inflation in the UK decelerated to an annual rate of 8.7% from 10.1% in March, primarily due to the drop in energy prices compared to the previous year. However, core inflation, which excludes volatile energy, food, alcohol, and tobacco prices, reached a 21-year high of 6.8%, rising from 6.2%. This outcome has heightened market expectations for a 13th consecutive interest rate hike scheduled for June.

The International Monetary Fund (IMF) adjusted its forecast for the UK economy, now predicting growth of 0.4%. This revised projection, considering the robust demand and declining energy costs, contrasts with the previous estimate in April that had predicted a 0.3% contraction in UK gross domestic product.

EU:

Official figures indicate that the German economy entered a recession in the first quarter. Gross domestic product contracted by 0.3% in the three-month period from January to March, downgraded from an initial estimate of zero growth. The revision reflects a significant decline in household consumption. In the final quarter of last year, Germany’s economy had contracted by 0.5%.

A survey conducted by S&P Global on purchasing managers revealed that business output in the eurozone experienced growth for the fifth consecutive month in May. However, the pace of growth slowed due to the weakness in manufacturing, partially offset by a strong performance in the services sector. Optimism regarding the economic outlook declined further from the 12-month high reached in February, amid increasing concerns about weaker customer demand and higher interest rates.

European Central Bank (ECB) policymakers echoed the stance of ECB President Christine Lagarde, emphasizing the need for further interest rate increases to combat inflation in the medium term. Bank of Spain Governor Pablo Hernandez de Cos stated that policy tightening still had a considerable way to go and that interest rates would need to remain at restrictive levels for an extended period to achieve their objectives sustainably. Banque de France Governor Francois Villeroy de Galhau anticipated reaching the terminal rate no later than in the summer.

US:

Despite Friday’s gains, discouraging inflation data may have limited the market’s upward momentum. The core personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation indicator, rose by 0.4% in April, slightly surpassing expectations. On a year-over-year basis, the index remained at 4.7%, indicating a lack of progress in reducing inflation since the beginning of the year.

In other news, the Commerce Department reported a significant increase in personal spending in April, with a 0.8% surge that was roughly double the consensus expectations. This growth was supported by increased spending on both goods and services.

Data released on Thursday revealed a moderate increase in the number of Americans filing new claims for unemployment benefits, reaching 229,000. Additionally, first-quarter GDP growth was revised higher from 1.1% to 1.3%.