Macroeconomics

For the fixed income fanatics amongst us, June was always going to be one for the books with all three of the major central banks meeting, elections, and continued data.

In spite of what looks like a quiet week ahead, there are a couple of data releases in the coming days that require close attention, these releases could potentially disturb the fragile calm that we are enjoying in the first trading hours of the week.

The UK’s Office for National Statistics (ONS) released their monthly inflation report this morning. In spite of April’s numbers showing a marked decrease in most inflation measures, it is fair to say that the report was significantly worse than expectations.

The NFIB (National Federation of Independent Business) survey can most certainly be considered an important report that monitors the pulse of the US economy.

Over the course of last week, we saw several headlines around Additional Tier 1s (AT1s). First, the Dutch Finance Ministry indicated it is exploring the possibility of modifying or abolishing the asset class.

We saw a great disparity among strategists in terms of default-rate projections for this year. With the cost for corporates to refinance their debt considerably higher than we saw in 2020 and 2021, and an elevated volume of upcoming maturities, many market participants predicted a default rate markedly higher than what we have seen so far. 

Yesterday’s US CPI report delivered a few interesting numbers but is still consistent with the Fed’s goals and timelines, which should allow it to cut rates in the context of some sort of a soft landing.

The latest US non-farm payroll numbers increased by 275,000 for February (payroll survey) incorporating a two-month payroll revision of -167,000, most likely due to seasonal factors, leaving a net revision of just 108,000 jobs added.

We have had a busy week on the central bank front with the Federal Reserve chair Jerome Powell’s semi-annual testimony to congress on Wednesday before Christine Lagarde took centre stage at the European Central Bank press conference yesterday. 

Last week's data deluge from the UK painted a mixed picture for the economy, offering insights into inflation, growth, and the possible path for interest rates.

The January US consumer price index (CPI) data came in stronger than expected with core month-on-month figures coming in at 0.4 % (0.3% expected) and year-on-year figures at 3.9% (3.7% expected) but unchanged from December’s 3.9% print.

Next week markets will receive January Consumer Price Index (CPI) inflation prints from the US and the UK, which will no doubt be widely followed. In the US, the Bloomberg consensus is for a significant drop in headline CPI from 3.4% to 2.9%, while core is expected to decline by a less spectacular 20 bps from 3.9% to 3.7%. For the UK, consensus is for a small increase in CPI inflation from 4.0% to 4.1%.