06 June 2024
If you are covering the latest financial market news, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
"Markets are poised for a pivotal day as the ECB is widely expected to initiate its rate cutting cycle with a first quarter point cut. The Bank of Canada has already stolen a march by reducing its lending rate by 0.25 percentage points to 4.75%, hinting at potential further cuts after inflation fell to 2.7%, a level which still exceeds the rate of inflation in both the UK and Eurozone.
"With the risk of central bank divergence seemingly dissipating, as expectations for rate cuts in 2024 in the US have been growing in recent days and economic data has suggested that inflation is being tamed as growth is beginning to slow, this may be adding to the confidence of central bankers outside of the US to make their move, with less concern about ensuing currency risks or capital flows.
"Data out in the US yesterday underlined this point, with the ISM Services PMI Report on Business highlighting contractionary employment conditions and a slowing pace of input cost inflation. On the flip side, activity in the services sector beat expectations, with economic activity growing again in May after an initial contraction in April. This reflects an acceleration in new orders, in sharp contrast to the apparent weakness reflected in the Manufacturing survey, which remains in contractionary territory.
"In encouraging signs for the UK economy, the British Chambers of Commerce updated its growth forecasts for this year to 0.8% from an earlier prediction of 0.5%, and to 1% in 2025 from 0.7%. This is likely to be mirrored by other economic forecasters in time due to the better than expected data out in Q1 when the economy emerged from recession with quarter on quarter growth of 0.6%, amidst signs of strength coming from sectors including transportation and the scientific research as well as the retail sector. While poor weather in Q2 may dampen this contributor to an extent, with retail sales volumes reportedly having fallen 2.3% in April following a fall of 0.2% in March, a more optimistic mood through the coming months, potentially buoyed by political promises, a summer of sport and most importantly the prospect of lower interest rates could see the UK economy again beat low expectations."
