Voices of Moneyfarm: US CPI, ECB & UK GDP

In another week of market-moving set of data releases, the Moneyfarm team spoke to UK media to give their reaction.

Can the Fed cut rates as planned this summer?

First, Moneyfarm Portfolio Analyst Jack Amy gave his thoughts on Wednesday’s inflation data from the US to Barron’s live blog.

“US headline inflation rose to 3.5% year on year, surpassing expectations, while core inflation excluding volatile food and energy prices read at 3.8%, again hotter than forecast. Shelter and gas are the two key factors which brought in the higher reading.

“Given the hawkish readings across the board for the third month in a row the likelihood of a June Fed rate cut is going to be brought into question.”

ECB decides to holds rates

Meanwhile, Moneyfarm Portfolio Manager and Head of Research Roberto Rossignoli passed comment on the European Central Bank’s decision to keep rates unchanged, with markets anticipating another major central bank rate cut in the summer:

“As anticipated, the ECB kept all its three key policy rates unchanged for the fifth consecutive meeting, but investors are already looking ahead towards June expecting the first cut, especially considering inflation is nearing the 2% target range. However, it’s clear that the ECB is maintaining a cautious stance amidst evolving economic conditions, indicating a preference to await more robust indicators, particularly concerning wage growth. This aligns with President Lagarde’s previous assertions, suggesting that a more definitive outlook may emerge by mid-year.

Today’s decision by the ECB comes against the backdrop of monetary easing in neighbouring Switzerland, prompting speculation on the pace of rate adjustments post-June within the Eurozone. Crucially, the spectre of diverging monetary policies between the ECB and the Federal Reserve looms large. With the Fed navigating a more complex landscape of inflationary pressures and robust growth, the ECB faces the delicate task of timing its moves amidst global economic dynamics, mindful of potential repercussions on currency markets and consumer prices.”

UK posts second month of positive growth

Finally for macro data, Roberto also issued a statement to UK media on UK GDP as the data was released on Friday morning.

“UK Gross Domestic Product (GDP) grew for a second consecutive month in February, expanding by 0.1%, according to the latest figures published by the Office for National Statistics (ONS). This development has boosted hopes that the recovery from the recession recorded at the end of 2023 is now underway. The ONS also revised up their figures for January, showing a 0.3% increase for the first month of 2024, compared to the previously quoted 0.1%.

“The growth in GDP for February was primarily driven by gains in manufacturing, particularly in the car sector, which saw a robust 1.2% rise last month—surpassing expectations. Additionally, the service sector experienced a modest expansion of 0.1%. However, these gains were partially offset by declines in the construction sector, largely due to wet weather conditions that stalled building projects.

“While the signs of a turnaround are encouraging for both policymakers and investors, it’s important to note that the recovery is likely to be modest. Past interest-rate increases continue to impact households and companies.”