Last week much of the focus was on the ECB meeting and US inflation whilst growth data in the UK was also monitored. As expected, the ECB held interest rates at 0% following the latest policy meeting and there were no changes to the asset-purchase programme. The bank also upgraded its GDP growth forecasts for 2021 and 2022 with next year’s projection increased to 4.7% from 4.1% seen in March. President Lagarde mentioned that inflation will rise further in the short term due to base effects, temporary factors and the increase in energy prices.

Yields in the US continue to be a big talking point. US consumer prices increased 0.6% for May, above consensus forecasts of 0.4% with the year-on-year rate increasing to 5.0% from 4.2%; the highest reading since September 2008.

Sterling remains fragile as the market continues to speculate a delay in the lifting of the final stages of restrictions. It has been reported that senior ministers have signed off on the decision to delay the lifting of all legal restrictions on social contact. Prime Minister Boris Johnson is due to confirm the delay later at a news conference. In the meantime, UK GDP increased 2.3% for April, in line with expectations, but the industrial production data was weaker than expected for the month.

Looking to the week, the main focus for the wider market will be on the FOMC meeting, where the market will be looking for signposting on monetary policy and tapering. Economic data from the US has been positive but the FOMC have remained neutral on this matter. The UK has a range of data set for release this week with employment data (Tue), inflation (Wed) and retail sales (Fri) all due.

Monday

  • UK Government Covid announcement
  • BoE Baily Speech

It is widely expected that PM Johnson will be announcing an extension to the lifting of restrictions. Whilst this is widely expected it will be largely down to the rhetoric that follows and the conditions of the extension. In the meantime, BoE Gov Bailey is due to speak at an online conference hosted by the Association of Treasurers. His comments and responses to questions will be closely monitored.

Tuesday

  • BoE Baily Speech
  • UK unemployment data
  • US Retail Sales
  • US Producer Price Index

BoE Gov Bailey is due to speak about the future growth of UK-based financial services at an online conference hosted by TheCityUK. Once again, comments and responses to questions will be closely monitored. UK employment data is due for release but may be less relevant as the government’s furlough measures continues. In the US, the retail sales and factory gate inflation due to hit the wires and will be deciphered to see if there is ongoing consumer demand and whether inflationary pressures continue to mount.

Wednesday

  • UK Inflation
  • US Housing Start
  • FOMC Meeting

UK consumer price inflation has been on the rise of late, but so far the move looks modest compared to rises seen elsewhere and particularly in the US. The market will keep a close eye on this given the recent signposting on interest rates. The headline event is the FOMC meeting. A change in monetary policy is very unlikely at Wednesday’s Fed update. However, it seems probable that the Fed will now make a small adjustment to its policy guidance given the upbeat economic data in recent weeks. Fed policymakers are also due to update their economic forecasts. The last update in March showed a significant upgrade in growth projections and reduction in unemployment rate forecasts. The next updates are likely to see further moves in this direction. Of particular note will be any signposting as to when the first rate hike could be.

Thursday

  • Philly Fed Manufacturing
  • US Initial Jobless Claims

It is a slightly quieter day today with the market likely to continue to decipher the rhetoric and tone from the previous day’s FOMC meeting. In the meantime, The Philly Fed manufacturing is due for release along with the weekly jobless claims.

Friday

  • UK Retail Sales

The UK’s retail sales for May will provide the market a clearer picture on consumer spending and whether momentum remains. Last month we saw a massive 9.2% following the release from lockdown. It is expected that we will see a sharp drop here on the month on month figure. The market is hoping that we continue to see a positive momentum as indoor dining returned and restrictions were further eased in May.

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