Daily Commentary: Markets await FOMC Statement
The latest batch of inflation figures was the focus of attention on both sides of the Atlantic yesterday with both the UK and US figures rebounding in May. In the UK, an increase in airfares last month helped push the annual rate of inflation to 2.7% in May. This was slightly above the 2.6% print expected by market analysts and above the 2.4% rate recorded in April. This morning we get the last set of MPC minutes for the outgoing Governor, Sir Mervyn King. It will be interesting to see whether last week’s stronger than expected PMI surveys persuade any of the three dissenters (opting for more QE) to change their minds. Sir Mervyn will also deliver his final Mansion House speech to London’s financiers tonight. In the euro zone the ZEW survey of financial analysts was the main release of the day. Whilst the forward looking expectations index posted its second consecutive rise, the ‘current situation’ component fell for the third month in a row. Meanwhile a key barometer of consumer confidence, new car sales, fell to a 20 year low last month. In the US, the housing market provided further signs of an ongoing recovery and the headline CPI inflation rate rebounded from 1.1% to 1.4% in May. This remains comfortably below the Fed’s 2% target and thus provides the central bank with plenty of scope to taper its quantitative easing very gradually. Financial markets eagerly await tonight’s policy announcement and statement from the Federal Reserve’s FOMC committee. Despite the steady stream of negative euro zone headlines (e.g. Cyprus baulking at its bailout terms, falling new car sales) the single currency remains largely unaffected. Eur/USD pushed back through the $1.34 level yesterday afternoon and remains at that level this morning. The stronger than expected UK CPI figures failed to give sterling any upward momentum against the euro. Eur/GBP is currently changing hands at 85.7p as I write this morning.