Introduction: Inflation fears weigh on markets
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Fears over sticky inflation – and even the dreaded stagflation – are hitting the markets this week.
Investors are growing more anxious that global interest rates will stay higher for longer, a worry that has knocked shares in recent days, as the yields – or rate of return – on government bonds push higher.
Last night, the UK’s FTSE 100 index fell for the sixth day in a row and traders are bracing for further losses today.
Central banks are attempting to slow growth through high interest rates to dampen inflation, but without cooling their economies so much that unemployment jumps.
But with US inflation running at 3.4% last month, still well over the 2% target, confidence that this soft landing can be achieved is faltering. Yesterday, inflation in Germany came in higher than forecast.
As Mizuho Bank said in a commentary:
“Hotter and stickier than expected global inflation appears to be taking the air out of asset markets.
In other words, “Goldilocks” coming undone. And worries about adverse demand impact from higher rates seeping through.”
Yesterday, a surpringly weak auction of US debt sent fresh jitters through trading floors, with buyers demanding higher rates as they bid for the bonds.
Kyle Rodda, senior financial market analyst at capital.com, explains:
A rise in global yields is forcing a re-rating in global equity prices, with Wall Street falling further overnight. Upward pressure on yields was compounded by a weak seven-year auction, reigniting fears about how the US will fund its rising deficit.
Although the European Central Ban seems certain to cut interest rate next week, both the US Federal Reserve and the Bank of England are expected to delay their first cuts until the autumn.
The agenda
-
8am BST: Swiss GDP report for Q1 2024
-
10am BST: Eurozone unemployment report for April
-
10am BST: Eurozone confidence stats for May
-
10am BST: Statistics on EU trade with Ukraine
-
1.30pm BST: Second estimate of US GDP for Q1 2024
-
1.30pm BST: US jobless claims
Key events
Baroness Martha Lane Fox, president of the BCC, is urging politicians to focus on helping businesses:
“In the frenzy of the election campaign, it’s crucial that all politicians focus on the power of British business.
“As I travel across the UK meeting Chambers and their businesses, I hear amazing stories of people determined to grow their businesses and make a difference in our remarkable country. But time and again businesses tell me they want to see a long-term vision for the economy.”
“Our manifesto showcases practical ideas on how politicians can help companies successfully navigate the challenges and opportunities our economy faces. It’s a blueprint for boosting productivity and a pathway to higher growth.
“Whichever party is in power after July 4th the immediate focus must be on implementing our five-point-plan for business. The stakes for business from the next government could not be higher.”
Business group says improving relations with EU is a priority
UK businesses are urging the next government to make improving relations with the European Union a key part of its drive to revive the economy.
The British Chambers of Commerce Election Manifesto, published today, cites improved relations with the EU as one of its five priorities, saying this would help lower costs and boost trade.
The BCC, which operates over 50 UK Chambers across the country, is calling for:
Shevaun Haviland, director general of the BCC, says this isn’t about reversing Brexit, explaining….
“The EU is the UK’s biggest market, so we urgently need to get a better trading relationship with our closest neighbour. It’s not about rewriting the referendum result, it’s about cutting red-tape and promoting trade.
Both the Conservatives and Labour have been criticised for not focusing on the impact of leaving the EU in this referendum, with former deputy prime minister Michael Heseltine warning the election campaign will be the “most dishonest in modern times”.
UK food importers of food from the EU have warned that new post-Brexit checks introduced this spring will push up costs, and create painful delays at the border.
Dimon warns of stagflation risks
Jamie Dimon, the head of JP Morgan, has caused further jitters by warning yesterday that the US economy risks stagnation – the toxic mix of rising prices and slow growth.
Speaking at a Wall Street conference yesterday, Dimon warned that the past five years of massive fiscal and monetary stimulus risked tipping the US into deflation.
Dimon said:
“I’m not saying it’s going to happen, I just give the odds much higher than other people,” Dimon added. “I look at the amount of fiscal and monetary stimulus that has taken place over the last five years—it has been so extraordinary, how can you tell me it won’t lead to stagflation?”
“It might not….But I, for one, am quite prepared for it.”
Dimon also explained that JP Morgan is prepared both for a soft landing, and something rather bumpier, saying:
“If we have a soft landing and rates stay where they are, come down a little bit—which is what the world expects, everyone’s fine.
If you have a harder landing with stagflation you’re going to see a lot of stress and strain in the system from banks to leveraged companies to real estate to a whole bunch of stuff.”
Introduction: Inflation fears weigh on markets
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Fears over sticky inflation – and even the dreaded stagflation – are hitting the markets this week.
Investors are growing more anxious that global interest rates will stay higher for longer, a worry that has knocked shares in recent days, as the yields – or rate of return – on government bonds push higher.
Last night, the UK’s FTSE 100 index fell for the sixth day in a row and traders are bracing for further losses today.
Central banks are attempting to slow growth through high interest rates to dampen inflation, but without cooling their economies so much that unemployment jumps.
But with US inflation running at 3.4% last month, still well over the 2% target, confidence that this soft landing can be achieved is faltering. Yesterday, inflation in Germany came in higher than forecast.
As Mizuho Bank said in a commentary:
“Hotter and stickier than expected global inflation appears to be taking the air out of asset markets.
In other words, “Goldilocks” coming undone. And worries about adverse demand impact from higher rates seeping through.”
Yesterday, a surpringly weak auction of US debt sent fresh jitters through trading floors, with buyers demanding higher rates as they bid for the bonds.
Kyle Rodda, senior financial market analyst at capital.com, explains:
A rise in global yields is forcing a re-rating in global equity prices, with Wall Street falling further overnight. Upward pressure on yields was compounded by a weak seven-year auction, reigniting fears about how the US will fund its rising deficit.
Although the European Central Ban seems certain to cut interest rate next week, both the US Federal Reserve and the Bank of England are expected to delay their first cuts until the autumn.
The agenda
-
8am BST: Swiss GDP report for Q1 2024
-
10am BST: Eurozone unemployment report for April
-
10am BST: Eurozone confidence stats for May
-
10am BST: Statistics on EU trade with Ukraine
-
1.30pm BST: Second estimate of US GDP for Q1 2024
-
1.30pm BST: US jobless claims