Rain Cheque

Ah, the weather. Yes, it’s been terrible. No, you cannot really blame it for crappy retail sales. Also, may I point out that whilst the value of UK retail sales has gone up this is entirely due to inflation – volumes have been declining since 2021 and are below pre-Covid levels.  

Sterling dipped a bit on the news to trade back below $1.27. The BoE has downed tools until after the UK election, so there is zero chance of an interest rate cut in June.

Programming note: I’ll be off next week for the half-term holiday. Hopefully, the weather will be more retail-friendly than it has been. Stocks are also taking a breather after a strong rally.

Chances of BoE, Fed Interest Rate Cut Chances Fall Further 

Chances of rate cuts are falling across the board – June all but fully priced out now for the Bank of England – UK services CPI at 5.9%, FOMC minutes talking about a willingness to hike more, the calling of an election and a strong US PMI at a 25-month high has lifted yields. Even August is less than evens. The ECB is a lot more confident it will cut next month, but after that it’s a very uncertain outlook. The Fed is now looking like it could not cut at all this year.  

Data dependency is just being too late to adjust policy. TS Lombard:  

“What the May FOMC minutes and Waller’s speech make clear is that the Fed’s only plan is letting data tell them which way to go... when the Fed does finally move, it will be too late. The Fed will only say ‘oops’ when things inevitably turn out wrong.”  

Stocks Retrace

Stocks were down quite sharply on Friday morning after a damaging day on Wall Street saw the S&P 500 erase early gains to finish down three-quarters of a per cent. That decline was in spite of a monster 9% gain for Nvidia shares in the wake of its earnings release.  

The 1.5% decline for the Dow was its worst session of the year. This morning, London, Paris and Frankfurt all fell by around 0.6% to head for a pretty snappy weekly loss, though they are still up for the month.  

US futures were a bit more promising. I’d been noting this week that super-low Vix and regular ATHs for the S&P 500 suggested something was around the corner – we could see further pullback beyond the April high support where we are at present (5,275). I spotted BofA noting yesterday that the index was expensive on 19 out of 20 metrics.

Commodities: Copper, Gold Price Steady

Commodities are taking a bit of a breather after a rollercoaster – copper fell again yesterday but has steadied at the 21-day EMA, gold price has likewise found temporary support at $2,325, with silver bouncing off $30.  

Additionally, oil traders will be keeping a close watch on any statements and comments from the various members of the OPEC+ cartel ahead of the meeting on Saturday, June 1st. Earlier this month, OPEC stuck to its forecast for strong growth in global oil demand in 2024.  

The question is how long Saudi Arabia will remain willing to carry the burden of voluntary cuts as production elsewhere grows. The Saudis have cut production by 2 million barrels a day, ceding market share to non-OPEC countries like the US, where production has hit a record high.  

Does the Kingdom change tack? I think not yet is the answer – they will move when they are confident that increasing production will not crater global oil prices. Meanwhile, Russia has been overproducing and says it will make up for it.  

FTSE 100 Pauses, Gold Price Attempts Rally

The FTSE 100 rally took a breather:

The gold price attempted to rally from the trend line:

There is lots more inflation data due up next week – PCE from the US plus Germany, the Eurozone, Japan and Australia. We also get the second reading for GDP and quarterly PCE inflation in the US. The initial reading showed growth slowed more than expected, but inflation was hotter than forecast.  

GDP expanded 1.6% in the first quarter, well below the 2.4% anticipated while core PCE inflation accelerated to 3.7% from 2.0%. This is an important report ahead of the June meeting of the Fed, but it seems markets have all but taken a rate cut next month off the table.  

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