UK mortgage approvals declined slightly to 70,700 for April from a revised 71,000 the previous month and close to consensus forecasts. Overall mortgage lending, however, increased by more than expected while consumer borrowing was resilient with a monthly increase of £1.3bn for the month and overall net lending increased to £8.3bn from £6.3bn in March. Sterling was unable to gain any traction amid unease over the economic outlook and expectations that the Bank of England would decide on a dovish rate hike at Thursday’s policy meeting. Markets expect the Bank of England will sanction a further rate hike to 1.00% following Thursday’s policy decision, but also expect a dovish rate hike.
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12.00 BoE Interest Rate Decision Exp. 1% Curr. 0.75%
12.00 BoE Minutes
12.30 Andrew Bailey Speech
The March German trade surplus slumped to €3.2bn from a revised €11.1bn with a significant dip in exports and strong import growth given the surge in energy costs. The Euro-zone final PMI services-sector index for April was unchanged from the flash reading of 57.7 even Italian and Spanish readings beat expectations. The EU announced another package of sanctions against Russia including a plan to phase out Russian oil imports within six months, although there may be exceptions for Slovakia and Hungary and there were still doubts over effective enforcement and whether there would be a substantial impact.
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The Federal Reserve increased interest rates by 50 basis points to 1.00% which was in line with consensus forecasts and the vote was unanimous. According to the statement, household spending and investment remain strong despite a slight decline in economic activity for the first quarter while inflation remains elevated. It added that further rate increases are expected, but also noted that the implications of the Ukraine war on the US economy are highly uncertain. The Fed will start to shrink the balance sheet from the beginning of June with an initial cap at $47.5bn for the first three months which will then be increased to $95bn. The central bank was optimistic that inflation would retreat to the 2% target with appropriate tightening and the dollar edged lower following the statement. Comments from Fed Chair Powell were broadly hawkish on inflation with the need to tighten policy relatively quickly, especially as the labour market was very tight with strong upward pressure on wages. Nevertheless, he ruled out increasing interest rates by more than 50 basis points at any individual meeting. Powell expressed hopes for a soft landing, but added that this would not be easy. The ruling out of rate hikes of more than 50 basis points provided decisive with 2-year yields declining 10 basis points.
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