Non-financial market commentators missed the fact that this was an above consensus print and the core rate remains stubbornly high at 3.9%, the biggest component contributor being services inflation, which remains at 5.9%.

US inflation saw a lower CPI print following 3 upside surprises in a row. Fed Funds futures now price in 50bps of easing by year end but the first cut is not priced in until November. Persistent inflationary pressure has prompted several Fed officials to caution rates may need to be higher for longer ‘an extended period of time’ and Chairman Powell, directly stated this after the last Fed meeting.

US labour also remains tight and recent numbers sent yields climbing. The US election isn’t until November and assuming it’s a Trump - Biden contest we have the usual baffling show to look forward to.

Over in Europe Sweden became the second major Central Bank to lower rates as the Riksbank followed the SNB in cutting rates for the first time in eight years. The ECB is still likely to move ahead of the Fed despite some inflationary pressures as the industrial recovery in the big four economies is still fragile. Several ECB officials including Lagarde have indicated that benign data will support a June cut.

The UK left our technical recession, growing 0.6% q/q in Q1 24. Good performance came from a strong investment environment, but net trade and export deficits are still a concern.

Hunt had little to deliver in any pre-election budget update if they had waited so there was little point in delaying an election hoping for better data. Fiscal headroom remains tight and will remain so whoever wins. Indeed, the IMF warned Hunt not to cut NI any further. They also upgraded growth prospects for the UK but warned that a future government ‘faces tough choices’ to stabilise the level of national debt.

UK Gilts sold off after the inflation print as the data threatens to further delay the start of the BoE’s easing cycle. The Bank has reiterated that they remain focussed on components such as service inflation and 5.9% is a fair way above their own forecast of 5.5%.

Credit spreads remain steady helping the primary market to deliver some strong levels of corporate issuance. The second week of April saw a YTD record and the 4th busiest week in years. Reverse Yankees continue to be a big contributor as cross currency rate dynamics between Europe and the US continues to favour American companies issuing into EUR (and to an extent into Sterling).
 

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