Ear to the Ground

07 June 2024

This week we saw two western central banks take the plunge and cut their interest rate.  First up we had the Bank of Canada, who beat their southern neighbours to the table and reduced by 0.25% to 4.75%.  This was very much in line with forecast.  They also stated that they are now more confident that disinflation is more embedded and should inflation continue to converge towards the 2% target more rate cuts are likely to be delivered. 

Also cutting this week was the European Central Bank (ECB).  They also reduced by 0.25%, now standing at 4.25%.  This was very much expected following previous comments from members of the decision making committee.  Whilst the cut was made, they did warn that domestic price pressures remain, and for this reason rates will remain appropriately restrictive.  That of course does not rule out further cuts, but it also is likely to mean that we won’t see a raft of cuts in quick succession. 

The US Federal Reserve may have to wait a little longer to make their first cut after stronger than expected employment data for May.  There were 272k jobs added in the month, which was way above the consensus forecast of 185k.  Job gains were seen across many sectors.  At the same time there was a higher than expected increase in average hourly earnings, telling us that wage pressures still remain.  The central bank may feel a little uncomfortable acting on the back of these stronger figures.

Other US economic data, meanwhile, was mixed.  Manufacturing remains in a state of contraction according to the latest purchasing manager indices, whilst the service sector continues to expand.  In the UK meanwhile the latest indices from S&P suggest that manufacturing, services and construction are all enjoying a phase of expansion.  We need to wait until the 20th June for the Bank of England to meet to decide whether they feel ready to cut interest rates just yet.

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