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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Bank of England is expected to keep interest rates steady at a 16-year high of 5.25 per cent on Thursday but traders will be on the lookout for signs of a possible cut next month.
Rob Wood, chief UK economist at Pantheon Macroeconomics, expects the BoE will signal that it plans “to cut interest rates faster and by more than markets are currently pricing”.
Swaps markets have sharply scaled back their expectations for interest rate cuts this year, removing nearly 1.5 percentage points worth of cuts by the end of 2024, on fears that inflation may linger.
But the Monetary Policy Committee has been split over how soon to lower rates, with members Dave Ramsden and Huw Pill offering different assessments over the outlook for inflation.
Sanjay Raja, economist at Deutsche Bank, expects Ramsden to vote for a rate cut after he said inflation could hold around the BoE target of 2 per cent for the next three years. That forecast is more benign than the BoE’s current inflation outlook, which forecasts a rise by the end of the year. Raja said the meeting would “set the stage for a June rate cut”.
Official data released on Friday is expected to show that the BoE’s February forecast about economic growth in the first three months was too gloomy. While the bank forecast the economy at near stagnation with a 0.1 per cent increase compared with the previous quarter, analysts polled by Reuters forecast a stronger 0.4 per cent expansion.
Either way, a positive change in GDP would officially mark the end of last year’s technical recession. Valentina Romei
What will corporate earnings tell us about the confidence of US consumers?
First-quarter earnings reports will continue next week, and updates from companies including Anheuser-Busch InBev, Tyson Foods and Disney should give investors some insight into the health of US consumer spending and the economy.
Corporate earnings for the first three months of the year have been relatively strong, with big blockbuster reports from the likes of technology giant Apple. But elsewhere there are some signs of stress. Starbucks this week reported a big miss in sales and profit, with same-store sales down 3 per cent. The company’s stock has fallen by roughly 16 per cent since the release.
While Starbucks’ chief executive blamed bad weather and a weak economic outlook, the results suggested that consumption — at least in some segments of the economy — may be starting to weaken. Reports in mid-May from Walmart and Target, two of the biggest US retailers, will give more evidence of consumer trends.
Other consumer-facing brands, including AB InBev, the maker of Budweiser beers, and Tyson Foods, one of the largest meat producers in the US, may offer some insight. Zacks Research expects both companies to report strong earnings. Kate Duguid
Will Australia signal a change in interest rate outlook?
Economists are expecting a change of tone from the Reserve Bank of Australia when its meeting ends on Tuesday, after economic data all but erased hopes of early interest rate cuts.
The annual consumer price inflation figure of 3.6 per cent for the first quarter provided further evidence that price growth was easing towards the RBA’s target band of 2 to 3 per cent. However, it was above market expectations of 3.5 per cent.
That prompted some economists to argue that the central bank’s strategy was not working.
Judo Bank’s Warren Hogan, who called the RBA’s moves in 2023 better than his peers, now expects that there will be three interest rate rises in 2024. That would push Australia’s 4.35 per cent interest rate above 5 per cent, and closer to rates in the UK, US and New Zealand.
Rabobank also joined the hawks with a forecast of two more rises to 4.85 per cent. HSBC said the inflation data had moved the calculus of an interest rate change towards up rather than down.
Others were less sure, citing the impact of demand for tickets to Taylor Swift’s Australian tour this month on retail data. That would give the RBA more time to sit on its hands.
Yet for all the excitement, the May meeting is likely to leave rates where they are, with economists pencilling in potential rises from August. Instead, all eyes will be on the outlook and how the RBA manages expectations. Nic Fildes
