OUR SUMMARY
UK inflation continues to cool, with headline CPI falling to 2.6% in March — the second straight monthly decline and a steeper drop than the anticipated 2.7%. This surprise miss has reinforced expectations for monetary easing, with markets now fully pricing in a 25bp rate cut from the Bank of England in May. Rate cut bets for 2025 have also climbed, with 86 basis points now priced in, up from 82bps the day prior.
In global markets, risk sentiment took a hit after former President Trump escalated trade tensions with China, moving to ban Nvidia’s export of H20 chips and considering tariffs on key minerals. Even China’s stronger-than-expected Q1 GDP growth of 5.4% hasn’t been enough to buoy investor mood, with geopolitical concerns overshadowing economic positives.
Looking ahead, U.S. retail sales data due at 1:30pm will be closely watched. A soft print could further dampen sentiment around the U.S. economy and weigh on the dollar as investors turn cautious on U.S. assets. Fed Chair Jerome Powell is also scheduled to speak later today. Given recent commentary, the focus is likely to remain on inflation, not growth, which could reinforce the Fed’s cautious stance on rate cuts.
Meanwhile, attention also turns to Canada, where the Bank of Canada announces its rate decision today. No move is expected, but after softer CPI data yesterday, there’s a growing chance policymakers may shift to a more dovish tone.
