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Market Report 16-05-202

Published: 16/05/2022 By ECAP

First-quarter GDP data last week was softer-than-expected, though some details of the number (strong investment, weak public and private consumption) were more positive at the margin. This week, inflation data should see the headline number vault to yet another multi-decade high, probably above 9%, and also strong gains on the core index, expected to print above 6%. Sterling appears to have stabilised recently, at least against other European currencies. However, it is hard to see any significant recovery against the US dollar until the Bank of England shifts its rhetoric towards more aggressive tightening. This week's line-up of no fewer than six MPC speakers provides a chance for that to happen, though it may be still early.

Second-tier economic data out of the US last week did not significantly change the picture of an economy at full employment, struggling with supply side constraints but still growing. Manufacturing and retail sales data out this week will provide the latest read on the health of the US economy, but they are unlikely to move the needle much. Currency trader focus will remain on the gyrations in the bond and equity markets. Markets suggest the flight to safety knee jerk move looks overdone and a stabilisation in stock markets could be enough for the US dollar to give up some of its recent gains.