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US CPI Inflation 3.36% y-o-y (consensus 3.4%) in Apr-24

- US CPI inflation in April 2024 slowed to 3.36% year-on-year, marginally on the low side of the consensus estimate.
- The Core CPI rate matched expectations by slowing to 3.6% year-on-year in April 2024. That is a welcome improvement, but it still shows excessively high underlying pressures.

US Politics: Taking Trump At His Word

• If Donald Trump returns to the White House in 2025, he will hit the ground running with an agenda that, among other things, stands to be deeply damaging to Europe both economically and politically. Europeans in denial should listen more carefully to his speeches and take him at his word.

By Alastair Newton

Policy Rate Reversal Warnings

• Rate hikes are unlikely to resume unless forthcoming cuts prove premature. Cutting outside recessionary regimes has historically been prone to reversals to higher peaks.
• 1998’s cuts followed a shock that failed to prove recessionary. Fed cuts in 1967 sowed the seeds of a severe inflation problem. Both cutting cycles were more than reversed.
• Independent ECB hikes in 2008 and 2012 were rapidly proven policy mistakes. The BoE’s single 2005 cut was also wrong. Hopes that 2024 is benignly like 1989 may be misplaced.

By Philip Rush

Hedge in May and Go Away

• A sharp rise in market rates drove down equity prices in April. The correlated move was consistent with our suggestion before Easter to hedge the downside with equity options.
• We now believe the front end is broadly flat enough, so we have turned neutral on rates relative to the market despite being more hawkish than the consensus on the BoE.
• The potential for market expectations to overshoot again, extending the bearish trends, means hedging with options may still appeal over selling or hoping for recovery.

By Philip Rush