The kickoff for monetary easing seems, finally, to have been launched. Sweden, in fact, joined the club of the first rate cuts last week. After the Swiss National Bank in March, the Riksbank decided last Wednesday to lower its key rates for the first time in 8 years! The monetary institution judged that inflation is approaching the 2% target while economic activity remains weak. A decision which should also be followed by other major central banks in Europe. In the euro zone, the disinflationary trend is confirmed by the decline in producer prices in March; the ECB should thus be able to initiate its monetary easing from June. The imminence of a rate cut is also reflected in the latest report from the ECB; some members even wanted to reduce them as early as April, although they only constituted a minority. If an initial reduction seems certain, it should nevertheless be kept in mind that the easing will not necessarily be rapid. There are still numerous debates within the institution on the trajectory of rates and the ECB will have to exercise caution in view of the recent rebound in activity. In March, retail sales thus surprised on the rise (+0.8% monthly compared to +0.6% expected and -0.3% in February) and this favorable dynamic should intensify, supported by the appreciation of real wages. Across the Channel, the same observation: the BoE has maintained the status quo but has opened the way to potential cuts in key rates this year. Note that 2 members out of 9 voted during the meeting to lower them (i.e. 1 vote more than at the previous one). Governor A. Bailey indicated that he was awaiting confirmation of the slowdown in inflation, particularly at the underlying level, while recalling that he was optimistic on the subject.
On the other side of the Atlantic, this is not the case. It's true, the latest economic statistics show a slowdown in growth, like the preliminary consumer confidence index from the University of Michigan which fell in May (67.4 against 77.2 in april). Concrete progress on inflation is nevertheless necessary in order to rule out the stagflation scenario which remains, at this stage, a risk. We will carefully follow the publication of CPI inflation for April as well as retail sales on Wednesday. In the meantime, let us nevertheless note the comments of T. Barkin (Richmond Fed), voting member of the FOMC this year. He once again reiterated that patience was required before acting. He nevertheless remains optimistic, as does the President of the Boston Fed, Susan Collins: current monetary policy should curb demand and help bring inflation back towards the 2% objective. Proof of this is that the quarterly survey on the evolution of demand and conditions for granting bank loans carried out by the Fed in the first quarter shows that borrowing conditions continue to tighten for both businesses and households. . The door is therefore not closed for the Fed to join its colleagues in the rate cut club, starting this year.
Meanwhile in China, entry into the Bull Market seems to be confirmed. We had also upgraded the area to “Positive” during our previous weekly bulletin.
