Inflation is falling fast

Thoughts of the Day

The UK’s annual inflation rate for May fell to 2%, as expected, from the 2.3% registered in April. This is the lowest rate of inflation since July 2021. This is a steep fall from the 11.1% of October 2022. Inflation was a major problem for the UK and a fall towards the 2% target is a good sign that progress is being made at a faster than expected pace. 

This increases the likelihood that we will see similar moderation in inflation in other developed economies as well. The European Central Bank’s decision to cut interest rates earlier this month is another sign that inflation may cease to be a problem for central banks soon. 

If we see confirmation of this in the US data, the US Federal Reserve could start to talk about imminent interest rate cuts fairly soon.

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Tradertainment

Tim Cook says he monitors his Screen Time reports ‘pretty religiously’ – but doesn’t say how long he spends using his iPhone

The Apple CEO told GQ magazine that the company has created tools for users that aimed to “help them put the phone down.” 

“My philosophy is: if you’re looking at the phone more than you’re looking in somebody’s eyes, you’re doing the wrong thing,” Cook said. “So we do things like Screen Time. I don’t know about you, but I religiously look at my report.”

“We don’t want people using our phones too much. We’re not incentivized for that; we don’t want that. We provide tools so people don’t do that,” he added.

If even the CEO of Apple is limiting his screen time, we ought to learn to do so as well.

Day Ahead

  • Bank of England Monetary Policy Decision (Interest rates expected to be kept at 5.25%)
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What Happened Yesterday

Market Movements as of New York Close 19 Jun 24
  • The US stock market was closed due to the Juneteenth holiday.
  • The crypto market traded mixed with Bitcoin down -0.28% and Ether up +2.21%. Bitcoin tradeds slightly weaker due to continued outflows within the Bitcoin ETFs.
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Headlines & Market Impact

UK inflation drops to 2% target for first time since 2021

Notable Snippet:  British inflation returned to its 2% target for the first time in nearly three years in May, but strong underlying price pressures all but rule out a pre-election interest rate cut.

While Prime Minister Rishi Sunak welcomed the fall in headline inflation in May, it has likely come too late to turn around his fortunes in British elections on July 4 or to prompt a Bank of England rate cut on Thursday.

Office for National Statistics data showed services price inflation, which the BoE thinks gives a better picture of medium-term inflation risks, was 5.7%. That was down from 5.9% in April, but higher than the 5.5% economists had forecast in a Reuters poll or the 5.3% predicted by the BoE last month.

Sterling rose modestly against the dollar and the euro after the data, but British government bonds underperformed as investors bet the BoE would delay following the lead of the European Central Bank, which cut rates earlier this month.

“Services CPI continues to print to the upside (which) we think removes any lingering risk that the Monetary Policy Committee might announce a cut to Bank Rate tomorrow,” said Cathal Kennedy, senior UK economist at RBC Capital Markets.

The drop in annual consumer price inflation from April’s 2.3% reading – in line with economists’ expectations – took it to its lowest since July 2021 and marks a sharp decline from the 41-year high of 11.1% in October 2022.

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Russia and North Korea sign partnership deal that includes mutual defence pact, Putin says

Notable Snippet:  Russia and North Korea on Wednesday signed a new “comprehensive strategic partnership” as Western officials grow increasingly concerned about the implications of President Vladimir Putin’s first state visit to the nuclear-armed country in 24 years. 

Russian state media reported the inking of the partnership, which included a mutual defense pact, hours after Putin arrived in Pyongyang to receive a red carpet greeting from North Korean leader Kim Jong Un and a welcome ceremony attended by thousands. 

“The comprehensive partnership agreement signed today provides, among other things, for mutual assistance in the event of aggression against one of the parties to this agreement,” Tass quoted Putin as saying.

“The Russian Federation does not rule out military-technical cooperation with the Democratic People’s Republic of Korea in accordance with the document,” Putin added.

It comes after the official newspaper of North Korea’s ruling party reported on Tuesday that Putin had promised to help develop trade with the country and help to strengthen security across Eurasia. The article added that he supports the DPRK’s opposition to its “dangerous and aggressive” enemies.

NATO Secretary-General Jens Stoltenberg told a joint press briefing on Tuesday that Putin’s trip “confirms the very close alignment between Russia and authoritarian states like North Korea,” as well as China and Iran. Stoltenberg delivered the comments alongside U.S. Secretary of State Antony Blinken.

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Solar is growing faster than any electricity source as Big Tech seeks clean energy for data centres

Notable Snippet: Amazon, Microsoft, Meta Platforms and Google alone represented 40% of the demand for large, utility-scale solar projects in the U.S. over the past five years, according to a May research note from investment bank UBS. Renewable demand from these companies, which are all committed to 100% clean energy, is poised to climb — artificial intelligence requires 10 times more electricity than the typical Google search, according to UBS.

Solar is forecast to make up 58% of new electricity generation installed in the U.S. in 2024, according to an estimate from the Department of Energy. A record 36 gigawatts of solar is scheduled to be added to the grid this year, nearly double last year’s increase, while battery storage will more than double to 14.3 gigawatts.

Just 2.5 gigawatts of natural gas, by contrast, is expected to be installed in the U.S. in 2024, coming in at just 4% of the 62.8 gigawatts of total planned power additions and the lowest number in 25 years.

“We’re seeing this kind of surge in demand for clean power,” said Joseph Rand, energy policy researcher at Lawrence Berkeley National Laboratory. “We’ve seen the economics of wind and solar, for example, become very competitive and very attractive to the point where in many parts of the U.S., those are the cheapest forms that … can generate a unit of electricity.”

The U.S. is facing a historic wave of electricity demand. As geopolitical tensions encourage protectionism, manufacturing is moving back to the U.S. with the support of the CHIPS and Science Act, which aims to increase domestic semiconductor production, the building block of the digital economy.

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Phan Vee Leung
CIO & Founder, TrackRecord