US return could boost activity, focus remains on BoE and UK inflation

Stock markets remain slightly in the red on Tuesday but activity should pick up with the return of Wall Street from the long bank holiday weekend.

The focus this week remains on the central banks and whether we are as close to the end of the tightening cycle as everyone wants to believe. While there is the temptation to take what the Fed and others say with a small pinch of salt given their record over the last couple of years and the fact that any pivot was always likely to come late, they have been proven more accurate recently on their assertion that rates need to keep rising.

Markets have been overly optimistic this year and there may be an element of luck on the central bank side – keen to not underestimate inflation again, they were always going to remain hawkish as long as feasibly possible – but the data simply hasn’t justified changing course yet.

That may change over the next couple of months but so far, especially in the UK, the turnaround in inflation has been more akin to a container ship performing a U-turn than a speedboat as many hoped. That may not dramatically increase the terminal rate but it may ensure it remains there much longer. Rate cuts this year look more fantasy than reality now.

The BoE will be hoping for some good news from the UK inflation data tomorrow but I’m guessing policymakers are approaching it with a sense of dread rather than hope. We’re not likely to see any significant progress from the May data but avoiding another nasty surprise may be viewed as a win, allowing the MPC to proceed with 25 basis points rather than 50 which markets are pricing in a 30% chance of at this stage.

Bitcoin’s recent trend remains against it despite recovery

Bitcoin drifted a little higher at the start of the week and is continuing to do so today. The move back toward $25,000 may have worried some but it’s recovered relatively well since then. The recent trend remains against it and until it breaks the pattern of lower highs – recovery rallies that fall short of recent peaks before falling again – it will continue to look vulnerable. A break below $25,000 could be another blow although gains this year would still remain extremely healthy.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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