UK inflation gives the doves cause for concern

• UK inflation concerns grow after 0.9% core CPI metric
• Nvidia earnings to dominate, but history should instill confidence
• FOMC minutes key after weak US data brought hopes of a September cut

European markets are losing ground in early trade today, following a UK inflation report that did little to encourage the idea that we are on the cusp of a potential rate cut from the Bank of England. Despite seeing a collapse in the headline inflation rate to 2.3%, the core metric provided cause for concern after rising 0.9% for the month of April alone. That differential between the encouraging 2.3% headline figure, and worrisome 3.9% core figure pushes the focus onto Andrew Bailey who needs to decide which of these will drive policy at Threadneedle Street. Crucially, we have also seen a major divergence between goods inflation (-0.8%) and services (5.8%), with the UK inflation problem now solely down to pricing within the services sector. For markets, we have seen the pound gain ground across the board, reacting to shifting rate expectations that have seen a June rate cut become increasingly unlikely.

Today looks to be dominated by Nvidia earnings, with the tech Titan representing the final ‘Magnificent seven’ stock to report their first quarter earnings. Coming off the back of a year that saw Nvidia earnings triple and revenues double, the concern for markets revolve around the longevity of this incredible pace of growth. With the fourth quarter having seen a whopping 16% gain after smashing estimates across the board, history would indicate that we could be in for plenty of fireworks given the hefty 5% weighting this company has in the S&P 500.

Today’s FOMC minutes provide a key insight into Fed thinking earlier in the month, with traders keen to gauge whether the September cut currently being priced in looks likely or not. Notably, the FOMC meeting took place three-weeks ago, and plenty has happened in the weeks between. With weak payrolls, rising unemployment, stagnant retail sales, elevated unemployment claims, and declining inflation, we have seen plenty of optimism that the Fed may feel the need to act swiftly. However, the elevated nature of US inflation continues to pose a major risk for markets, and today’s minutes provide an opportunity to gauge just how committed the Fed are to driving prices back down to target before easing monetary conditions.