UK inflation has fallen back to the Bank of England’s (BOE) 2% inflation target, but markets don’t expect the price data to impact the central bank’s monetary policy decision due on Thursday. The Swiss National Bank (SNB) also announces its latest monetary policy decision on Thursday, its first since surprising markets with a rate cut in March. Markets in the US were closed on Wednesday for a public holiday.
The Consumer Price Index in the UK fell to 2% in May, down from April’s 2.3% increase in consumer prices. Services inflation - which is closely watched by the BOE - came in at 5.7% in May, hotter than market expectations. While headline inflation has returned to the BOE's 2% target for the first time in almost three years, it is likely to be too late to change the outcome of the central bank’s monetary policy decision, which is set to be published Thursday afternoon. A majority of economists don’t expect the BOE to diverge from its 16-year high of 5.25% Bank Rate on Thursday or at its August meeting, but expectations are much higher for a first cut in September or November. Factors such as high services inflation and stubbornly high wage growth - which came in at 5.8% in the three months ending in April - are expected to prevent the BOE from beginning its easing cycle too quickly.
Also on Thursday, the SNB is due to deliver its first monetary policy announcement since surprising markets with a rate cut in March, the first among the world’s major central banks. While a clear consensus has been built ahead of the BOE decision, the SNB is known to be much more difficult to read. Recently, Swiss inflation held a 1.4% increase from last year in May - its fastest pace so far this year. As recently as May, a large majority of 80% of market participants expected the SNB to cut, but the most recent surveys have shown a slight majority forecasting a hold.
The People’s Bank of China kept its one-year loan prime rate, which is used for corporate and household loans, unchanged at 3.45%. It also left the five-year loan prime rate, which is used as a peg for property loans, untouched at 3.95%. Hong Kong's Hang Seng Index and the CSI 300 were both trading down about 0.6% on Thursday. In Tokyo, the Nikkei 225 was up 0.3% and in South Korea, the Kospi was trading 0.5% higher. In Australia, the S&P/ASX 200 was roughly flat.
Corporate news in focus: Quarterly figures from Accenture. Annual general meetings at Alstom, Kingfisher.
Economic data in focus: Swiss National Bank (SNB) interest rate decision and Financial Stability Report, Swiss trade balance, German Producer Price Index, Bank of England interest rate decision, US weekly initial jobless claims.
Global economic and market trends at a glance
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Editor: Alessandro Fezzi
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
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