23 Jul 2024
Political uncertainty has outweighed economic improvement
Market Review Strong growth data are holding back cuts in interest rates The quarter was dominated by the waxing and waning of the central banks, which generally moved in a more hawkish direction. The ECB stole a small lead on the rate-cutting theme after the cut by 25bps in June to 3.75%. The Fed, having been priced to cut rates by seven times in 2024 at the turn of the year, now foresees (going on the current dot plot forecasts) just one cut in the next six months. Inflation has generally remained stickily high; in Europe, headline inflation ended the first quarter at 2.4%, just 0.1% higher than at the end of the second quarter. The latest ECB staff forecasts expect 2.5% headline inflation this year and 2.2% in 2025, with core inflation converging with headline next year. Eurozone GDP surprised on the upside in the first quarter, at 0.3% QoQ, leading to full-year revisions to the current 0.7%, whilst the ECB now forecasts 0.9%.