Weekly Market Update 14 May – Fed signals no rate hikes despite higher inflation; economic recovery expected in Europe and UK
1. US retail sales stayed unchanged while industrial production rose at a softer pace than expected in April, sending the US Dollar Index lower. Inflation data in April gained the most in nearly 12 years, intensifying concerns of tighter monetary policy briefly until Fed Governor Waller assured that rates will not rise until inflation remains above target for a long time.
2. Investor confidence and economic sentiment in the Eurozone came in positive and German inflation rose in April, in line with expectations. News of member states across the Eurozone planning to reopen borders this coming summer fuelled optimism towards more rapid economic recovery and corporate earnings.
3. The UK economy shrank by 1.5% in Q1 amid nationwide lockdown measures. However, with the reopening of the economy, a sharp rebound is expected for the rest of the year, with the IMF forecasting a GDP growth of 5.3% for the UK in 2021. The GBP strengthened amidst optimism on the reopening and favorable data, staying on track for the second week of gains against the dollar.