Good morning how can I help
Yesterday’s US inflation data all but put the final nail in the coffin of any hope the Fed might cut interest rates later this month, in the markets’ mind at least. The annual rate of US inflation rose to 2.7% in line with what analysts had forecast, but remains above the Fed’s 2% target. Are Trump’s tariffs partly to blame? Some economists seemed to believe that this was indeed the case; others believed that the jump was driven in part by the spike in oil prices during the Iran-Iraq conflict. The reality was probably a bit of both. Companies will likely absorb some of the tariffs and pass on some of the pricing to their customers. As earnings season kicked off yesterday with strong numbers from the likes of J.P. Morgan and Citi, in the coming weeks, as more and more of the S&P 500 report second-quarter earnings, we will get a clearer picture of how these tariffs are impacting US corporations, and how much companies are absorbing and how much they can pass on. The strong will be able to pass more on than the weak.
Trump once again made it clear that he feels the Fed is dithering and should cut interest rates now, and Powell is coming under increasing scrutiny. The latest, which one might feel is driven more by politics than by reality, but who knows, is that Powell has mismanaged the U.S. central bank’s $2.5 billion renovation project. Trump may have found the lever he needs to oust his Chairman. Unsurprisingly, a queue of potential candidates seems to be lining up, eager to take over and do the President’s bidding. Kevin Warsh is a prime example of someone who was once a hawk and is now a dove, as he looks to put his hat into the ring. Another is Kevin Hassett, not sure if having the Christian name Kevin is also part of the job description.
How would the bond market react to Powell’s departure, if it were to happen? Shorter-dated yields would likely fall, reflecting the increased likelihood of a rate cut; longer-dated yields would rise, given the risk that inflation does indeed pick up. The stock market would likely receive a boost as well.
As the latest UK inflation data, released this morning, confirms that the rate of inflation remains significantly above the Bank of England’s target, it came in even higher than forecast. Following last week’s disappointing GDP data, it suggests that the UK economy is not in the best shape. The FTSE 100 topping 9,000 for the first time reminds us that stock market performance and economic growth are not always totally correlated. Last night, Rachael Reeves delivered her Mansion House speech, in which she discussed some of the right things, like easing regulations to stimulate growth, but was light on detail. In reality, everyone’s focus is on out-of-control government spending and how the working person will pay for it in October.
Finally, am I the only one who finds it slightly annoying to be asked every time I go into a shop if I’m alright? Do I not look alright? What happened to ‘good morning/afternoon’? How may I assist you? What can I do for you? Or am I just a grumpy old man? Probably.