Sterling sentiment remained weak amid on-going fears surrounding the outlook for consumer spending, especially given the pressure from higher energy costs. There were also further expectations that Bank of England interest rates are already close to a peak. Brexit tensions added to negative sentiment towards the UK currency with fresh reports that the UK was preparing legislation to breach treaty obligations under the Northern Ireland protocol. Although risk appetite attempted to recover during the day, a fresh slide on Wall Street soured sentiment towards the European close. The NIESR forecast that the UK would endure a technical recession in the second half of 2022, but also called for additional support measures for the poorest households. Sterling edged higher on Wednesday amid a slightly less defensive tone surrounding risk appetite, but overall confidence remained vulnerable.
No Key Data
The German ZEW economic sentiment index improved to -34.3 for May from -41.0 the previous month and slightly stronger than consensus forecasts of -42.0. The current conditions index, however, dipped to -36.5 for the month from -30.8 and slightly weaker than expected. The Euro-zone index posted a stronger recovery to -29.5 from -43.0 in March and stronger than expected as overall Euro-zone vulnerability to the Ukraine crisis is perceived as slightly lower. Bundesbank President Nagel stated that the inflation trend is disturbing and that it is also gaining momentum. He added that the ECB should raise rates in July if incoming data confirms that inflation is too high and that the risks of acting too late are increasing. He also warned that price expectations could become less anchored.
Key Data
7.00 German Harmonized Index of Consumer Prices (YoY) (Apr) Act. 7.8% Exp. 7.8% Prev. 7.8%
9.00 Christine Lagarde Speech
The US NFIB small-business confidence index was unchanged at 93.2 for April and marginally above expectations. There were still concerns surrounding cost pressures and inflation with 32% of businesses reporting that inflation was their most pressing problem, the highest proportion since 1980. New York Fed President Williams stated that the central bank will move expeditiously to bring interest rates back to more normal levels. He stated that the US has a sizzling hot labour market while the central bank needs to be data dependent and adjust policy actions as circumstances warrant. He added that 50 basis-point rate hikes at the next two policy meetings makes sense as a base case while the Fed can certainly move above neutral if necessary. Richmond head Barkin said that inflation was high, persistent and broad based. The Fed will get to neutral and then decide if the central bank needs to put the brakes on. Cleveland Fed President Mester stated that she thought the central bank would need to go beyond neutral and that she would need compelling evidence that inflation is moving down. She added that there may be another quarter of negative growth and that unemployment may need to rise to bring inflation down.
Key Data
13.30 Consumer Price Index ex Food & Energy (MoM) (Apr) Exp. 0.4% Prev. 0.3%
13.30 Consumer Price Index ex Food & Energy (YoY) (Apr) Exp. 6% Prev. 6.5%
19.15 Joe Biden Speech