In today’s briefing:
- The Rally in Gold: Clear as Day
- EA Inflation Subdued Enough for the ECB
- UK Stuck With High Services Inflation
The Rally in Gold: Clear as Day
- The massive rally in the price of gold coincided with Fed Governor Waller’s speech, in which he stated that he believes the Federal Reserve should buy more T-bills.
- Many market pundits argue that changing narratives explain historical gold rallies.
- But digging a bit deeper reveals that, especially since the Great Financial Crisis, the narrative behind gold’s strong performance has been the same and getting stronger.
EA Inflation Subdued Enough for the ECB
- The final EA HICP inflation print confirmed the downside surprise to 2.4% from the flash release. Progress gets more challenging as energy and food base effects wear out.
- Although services inflation is stuck at 4%, that is far better than the UK’s 6%, and the median inflationary impulse is broadly settling below the ECB’s target.
- Labour costs might remain inflationary, but the ECB seems to have sufficient confidence to cut in June unless the data surprise significantly to the contrary.
UK Stuck With High Services Inflation
- UK CPI inflation exceeded the consensus by 0.1pp as it only slowed to 3.2% in March, as we forecasted. Services inflation stuck at 6%, and high-frequency impulses increased.
- Persistently high pay settlements sustain wage and underlying price inflation above target-consistent levels. We only see services slowing below 4.5% in September.
- We expect the BoE to cut in November after the ECB and Fed. Further resilience in UK and global data could still cause all three to roll back even further.
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