Early Morning Call: GBP rises as UK CPI falls by less than forecast

UK CPI

UK consumer price index (CPI) rose 8.7% in April year-on-year (YoY) after 10.1% in March, above the 8.2% expected. This is the lowest consumer inflation rate since lowest March.

Producer price index came in at 5.4% and the retail price index at 11.4%. The UK economy is expected to avoid a recession this year, the International Monetary Fund has said, after it sharply upgraded its growth forecast. It now expects the UK to grow by 0.4% in 2023, whereas last month it forecast the economy would contract by 0.3%.

Central banks

As widely expected, the Reseve Bank of New Zealand (RBNZ) official cash rate (OCR) rose by another 25-basis points (bp) to 5.5%, its highest level in more than 14 years. This twelfth straight hike since October 2021 makes the RBNZ the most hawkish bank in the world, with a total of 525 basis points added to the OCR. 5.5% was the peak level the central bank announced its rate would reach and now the RBNZ confirmed it would remain there until the middle of next year:

"The OCR will need to remain at a restrictive level for the foreseeable future, to ensure that consumer price inflation returns to the 1% to 3% annual target range, while supporting maximum sustainable employment."

New Zealand's annual inflation is currently running just below a three-decade high of 6.7%. The central bank is still forecasting a technical recession, with negative growth in the second and third quarters of this year.

The Federal Reserve (Fed) minutes will be published tonight at 7pm UK time. Earlier this month the Fed raised the fed funds rate by 25bp to a range of 5%-5.25%. While saying that further firming may still be appropriate depending on data, the Fed also signalled that it may be done with a tightening cycle.

According to CME Group's FedWatch, there is a 74% chance the Fed will leave the fed funds target unchanged at its next meeting in June.

Equities

Elsewhere on the equity market, Marks & Spencer reported a 7.8% decline in annual profit. Profit before tax and adjusting items came in at £482 million, ahead of analysts' average forecast. For the 2023-24 year, Marks & Spencer sees a "modest" growth in revenue.

Kingfisher kept its full-year (FY) outlook unchanged after reporting a fall in first quarter (Q1) like-for-like sales. Sales came in at £3.3 billion in the three months to April 30, 3.3% lower on a like-for-like basis.

As we could have expected, the ban of some Micron products by Chinese authorities has become a serious political matter in the US. We reported on Monday that according to the Cyberspace Administration of China, some Micron products had failed a security review in the country. A decision "not based in fact" said the white house yesterday, adding that the Commerce Department was "engaged directly" over the matter.

The Chair of the US house of representatives went a step further yesterday, saying that the US Commerce Department should put trade curbs on China’s leading memory chip maker CXMT.

NVIDIA is set to report first quarter earnings tonight after the closing bell. The street anticipates 92 cents per share earnings, a 32% drop compared to Q1 2022. Revenue is also expected to fall, by 21% to $6.52 billion.

NVIDIA stock has more than doubled since the beginning of the year. Benefiting from a series of positive events. Earlier this year NVIDIA launched a new processor, a new graphics card. Alphabet also revealed earlier this month that it is using NVIDIA products to power its AI purpose-built A3 supercomputers.

Commodities

The recent strength of the dollar and growing economic concerns are weighing on industrial metals. Copper, often seen as an economic bellwether, has briefly fallen below $8,000 for the first time since November. If we look beyond this psychological level, copper has lost 6.7% so far this month.

As the strength of China's economic recovery falters, it is not just copper that has suffered. Zinc is well on track to post a fourth straight month of declines, and trades at its lowest since October 2020. Aluminium and Iron ore are testing recent lows.