Inflation was released in the Eurozone at 7.4% for March. This high reading was addressed by Christine Lagarde, the president of the European Central Bank (ECB), who read a statement at the IMF spring meeting later in the week. She took the opportunity to not only condemn Russia’s actions and express support for Ukraine, but also to reiterate the main drivers behind inflation – those being supply chain constraints, energy price increases due to the war in Ukraine, and increased food prices due to “elevated transport and production costs” which are higher due to the “price of fertilisers” impacted by war. In Lagarde’s narrative, she stressed that it is important that the ECB’s economic outlook is well communicated, and she confirmed that every step of the way, the central bank remains data dependent and flexible.
Also, in attendance at this meeting, was Jay Powell, the chair of the US Federal Reserve (Fed), who had a more hawkish narrative.
Powell announced on Thursday, ahead of the Fed’s meeting next month, that they are likely to raise interest rates by 50 basis points (0.5%) in May. It appears that the Fed are adopting an attitude of ‘take one confident leap and then step back to assess what happens’.
Interest rates are so low relative to history, that whilst a 50-basis point increase would double the interest rate from 0.5% at the upper bound to 1.00% at the upper bound, to get close to the highest interest rates we have seen in the last 20 years, the 0.5% rate hike would need to be closer to 10 times the size!
In other news, towards the end of the week, Boris Johnson visited India, citing discussions of a potential UK-India post-Brexit trade deal as one of the biggest developments, which would be welcome news for markets. He recognised India as “an incredible rising power in Asia”.
Over the weekend, we will see the French presidential election run-off vote in France, it’s looking likely that Macron will win by a small margin. Some of the most notable data next week includes growth and inflation data from US and Europe.
Investment Management Team