Investors forced to reconsider interest rate forecasts amid disappointing data

UK interest rate expectations rise after inflation data

We’re seeing very mixed trade on Thursday, with the Nasdaq making strong gains of more than 1.5%, the Dow and S&P treading water, and Europe mostly in the red.

Once more there’s a heavy focus on central banks and whether investors have been too optimistic about when and where the peak in interest rates will come, and by extension how soon after they’ll fall.

UK inflation data on Wednesday was very disappointing, despite finally falling back into single digits. It remains stickier than hoped and core inflation in particular was a nasty shock, forcing investors to significantly revise up rate expectations over the coming months.

Fed pause on hold?

The Fed minutes were largely as you would expect, with there remaining a clear divide between those that are concerned about the tightening lag and tighter credit conditions and those that feel more hikes are needed due to insufficient progress on inflation so far.

Today’s data will have done little to put their minds at ease, with growth in the first quarter a little higher than expected and jobless claims falling well short of expectations on top of downward revisions to the previous week. Markets are now pricing in another hike over the next couple of meetings, even if the Fed holds in June.

Mild correction continues but 2023 gains are still very healthy

Bitcoin has continued to drift lower today although it has rebounded around $26,000, around the lows from a couple of weeks ago. This represents the next level of technical support below, with $25,000 being the next big test below. The price remains almost $10,000 above where it started the year so even taking the more than 15% correction into account since mid-April, it’s still more than 50% up this year.

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