Investors are closely monitoring the upcoming UK inflation data, which could indicate further progress in the global disinflation trend. Scheduled for release on Wednesday, this data may not significantly influence the Bank of England‘s policy review set for the following day. Headline inflation in May is expected to be 2% year over year, aligning with the BoE’s target, down from April’s 2.3%. This anticipated decrease is largely attributed to the easing of household energy bills. Despite this, the central bank is expected to maintain its current rates, with policymakers focusing on wage growth and service sector inflation, the latter projected at 5.5% in May.
Recent data showed that British wages rose more rapidly than anticipated, pressuring the central bank to keep rates higher for an extended period. The inflation data and subsequent policy decision will offer investors clarity ahead of the UK’s general elections in July. The blue-chip FTSE 100 has dropped 3% since its peak in May, evoking a sense of déjà vu among market participants. Just last week, mild U.S. inflation readings preceded a hawkish stance from Federal Reserve officials, who adjusted their median projection for rate cuts from three quarter-point reductions to just one for the year.
With U.S. markets closed, trading activity is expected to be subdued. Sterling remains stable at $1.2711, while the dollar weakened following retail sales data on Tuesday that suggested signs of consumer fatigue. This data has slightly increased expectations for a rate cut in September, though the Fed’s data-dependent approach means these expectations are subject to change. At the start of the year, traders had anticipated up to 160 basis points of cuts in 2024, but current projections have reduced this to 48 basis points.
In contrast, Nvidia continues to thrive, recently surpassing Microsoft to become the world’s most valuable company at $3.335 trillion. The rally in technology stocks has extended into Asia, boosting regional markets. Tech-focused Taiwan stocks have reached new record highs, while South Korean stocks have hit their highest levels since January 2022.
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