Archive

HEW: Dovish Arguments Ageing Poorly

• Equity and rates market prices normalised further as data remains too resilient to prompt cuts, and US trade policy still seems to be reversing its destructive aspects.
• UK GDP boomed beyond expectations again, albeit amid residual seasonality. US CPI data were soft and stable, as companies appeared to have smoothed the tariff shock.
• Next week’s UK inflation data could compound the pressure by exceeding the consensus to reach 3.4% on the CPI. The flash PMIs and RBA decision are other timely highlights.

By Philip Rush

UK: Spurious H1 Surge Again

• GDP’s resurgence caught the consensus off guard, as it failed to recognise the residual seasonality still skewing activity growth into the first half of the year.
• The 0.7% q-o-q outcome for Q1 matched our forecast and leaves a powerful carry-over to Q2, where GDP seems set to exceed the BoE’s 0.1% forecast at about 0.4% q-o-q.
• Strength discourages another policy rate cut. Disappointment in H2 is the hangover, but we doubt it will motivate renewed easing amid excessive price and wage inflation.

By Philip Rush

Mexico: 50bp Rate Cut To 8.5% (Consensus 8.5%) in May-25

• As expected, Banco de México cut the overnight interest rate by 50 basis points to 8.50%, continuing its cautious easing cycle amid ongoing disinflation and subdued economic growth.
• Headline and core inflation stood at 3.93% in April, but short-term forecasts were revised upward due to stronger goods price pressures, with the inflation path still projected to reach the target by Q3 2026.
• Despite improved inflation dynamics, upside risks persist. Nonetheless, the Bank signalled further cuts of similar magnitude, while seeking to maintain a restrictive stance that safeguards convergence to the 3% target.

USD Bears Broke The Bandwagon

• Investors ask whether threats to the USD’s reserve currency status are resting or dead, whereas we wonder if it was ever alive. Commentators routinely overextend narratives.
• The USD share of allocated FX reserves is already trending downward. A potential acceleration from smaller deficits and higher tariffs would partly offset the impact.
• Fuller hedging of USD asset holdings abroad may have already reached its limit. We still see more attractive mispricing elsewhere, such as excessively dovish rate curves.

By Philip Rush