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Pound spikes as sticky inflation shatters hopes of BOE rate cut

The British pound shot up against the US dollar after data released on Wednesday showed the UK inflation rate froze in place in June. In the euro area, inflation fell slightly, but that wasn’t enough to save European equity markets, which were mostly down midweek. On Wall Street, the rotation out of tech continued midweek, while Asian stock markets were mostly in the red on Thursday.

Data
Autore
Shane Strowmatt, LGT
Tempo di lettura
5 minuto

Pound
© Shutterstock

The UK Consumer Prices Index increased by 0.1% in June when compared to the previous month, or 2.0% when compared to the same period a year earlier. The main contributors to the monthly change were higher hotel prices compared to a year ago, while clothing and footwear prices decreased compared to the previous year. The core Consumer Prices Index - which excludes energy, food, alcohol, and tobacco - increased 3.5% on an annual basis, maintaining the same rate as May.

The Bank of England (BOE) kept rates unchanged in June at a 16-year high, despite inflation falling back to the bank’s 2% target prior to that monetary policy announcement. BOE Governor Andrew Bailey cited uncertainty about the future of price increases at the time in justifying the decision and June’s unchanged inflation rate may not be sufficient to convince policymakers to kickstart a rate cutting cycle. However, with the main driver of higher prices - hotel and transport costs - possibly related to temporary special events, BOE officials may choose to overlook the sticky inflation. Market participants’ expectations for a cut at the central bank’s next monetary policy meeting in August fell after the announcement while the pound rose above USD 1.30 for the first time in a year. Most economists expect easing to begin in September or November.

Euro-area inflation falls slightly

Inflation in the euro area fell to 2.5% on an annual basis in June, down from 2.6% in May. Belgium and Romania had the highest national figures, each up more than 5% on the year. The major drivers of euro-area inflation were services and food. The European Central Bank announces its next monetary policy decision later Thursday. The Euro Stoxx 50 fell 1.1%, France’s CAC 40 lost 0.1% and Germany’s DAX closed 0.4% lower on Wednesday.

Chipmakers under pressure

Shares of ASML plummeted nearly 11% in Amsterdam trading on Wednesday. While the company delivered strong order intake along with its second-quarter results presented on Wednesday, investors were concentrating on a media report that cited ASML as one of the losers of a US plan to further restrict chip sales to China. Chipmaking stocks such as AMD (-10.2%), TSMC (-8%) and Nvidia (-6.6%) were also under pressure in New York on Wednesday.

The movements of the previous sessions on Wall Street continued with old economy stocks among the biggest winners and tech stocks among the biggest losers on Wednesday. The Dow Jones Industrial busted through the 41,000 mark on Wednesday, closing 0.6% higher at 41,198.08 points. The S&P 500 lost 1.4% while the Nasdaq-100 dropped 2.9%.

Asian stocks slide outside of China

In the Asia-Pacific region, stock markets were mostly trading lower on Thursday. Investors were digesting Japanese trade data, with both exports and imports coming in lower than market expectations. Exports increased 5.4% in June when compared with the same period of the previous year, down from 13.5% in May. Meanwhile, imports were up 3.2%, much lower than May’s 9.5%. The Nikkei 225 was leading regional losses, trading 2.3% lower. In South Korea, the Kospi was down 1.3%. In Australia, the S&P/ASX 200 lost 0.3% after the country released labour market data showing that the unemployment rate slightly increased to 4.1% on a seasonally adjusted basis in June. Hong Kong's Hang Seng Index and the mainland CSI 300 were each up 0.4%.

Corporate and macroeconomic calendars

Corporate news in focus: Earnings figures from VAT, ABB, Nokia, Marsh McLennan, Georg Fischer, Novartis, Blackstone, Abbott Laboratories, TSMC, Intuitive, Netflix.

Economic data in focus: Swiss trade balance, UK unemployment, European Central Bank interest rate decision, US weekly initial jobless claims, Conference Board US Leading Economic Index.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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