Traders examine interest rate bets after inflation updates

Today’s top stories

• Slovak Prime Minister Robert Fico was shot and injured in the town of Handlová. Witnesses said several shots were fired at the nationalist leader as he was greeting people following a government meeting. He was rushed to hospital.

• Russian President Vladimir Putin blamed “western elites” for the war in Ukraine as he outlined Beijing and Moscow’s alignment on a parallel world order as he headed to meet China’s Xi Jinping. Here’s our Big Read on their growing relationship.

• The US is encouraging Arab states to participate in a peace-keeping force that would deploy in Gaza once the war ends. US President Joe Biden plans to send $1bn in new military aid to Israel.

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Good evening.

Inflation updates on both sides of the Atlantic today had traders examining their bets on the likely path of interest rates while reminding Joe Biden of the difficulties ahead in convincing Americans to re-elect him as president in November.

US inflation fell to 3.4 per cent in April, down from 3.5 per cent in March. Core consumer prices, stripping out volatile food and energy costs, were up 3.6 per cent, the lowest rate since April 2021. The headline drop, although in line with expectations, ended a four-month-long streak in which inflation was higher than expected, leading investors to increase their bets on Federal Reserve interest rate cuts this year.

Today’s data follows another warning from Fed chair Jay Powell yesterday that stickier than expected inflation meant interest rates were likely to stay higher for longer.

Still-high inflation is doing no favours to Biden’s chances of re-election. As the latest FT-Michigan Ross poll highlights, some 80 per cent of Americans say rising prices are still causing pain while general disapproval of his handling of the economy is increasing. He can at least point to a roaring stock market: the S&P 500 hit an all-time high following today’s data.

Eurozone inflation, meanwhile, is set to drop faster than expected this year as the impact of Red Sea trade disruption proves milder than anticipated, at least according to updated EU estimates this morning. Brussels now thinks it will hit 2.5 per cent this year, before reverting to the European Central Bank’s 2 per cent target in the second half of next year.

Brussels also increased its growth estimates and now expects the single currency bloc to expand by 0.8 per cent this year and the wider EU by 1 per cent. Recent GDP data showed a nascent recovery in the Eurozone in the first quarter, boosted by higher exports, increased tourism and a rise in consumer spending as inflation fell, but is expected to remain weaker than the US and China.

It still looks likely that Europe will move much earlier than the Fed when it comes to cutting rates. This divergence, highlighted this week by Sweden’s first cut in eight years, is not something the ECB should fear, writes Chris Giles in his Central Banks newsletter (for Premium subscribers), even if there is some disagreement among policymakers.

More worrying is Europe’s economic performance, particularly compared with the US. As our Big Read explains, many European countries are still faced with weak productivity alongside low levels of investment, high energy costs, ageing populations, shrinking workforces and falling working hours. Germany, the EU’s biggest economy, is thinking about tax breaks to get people working longer.

Some policymakers believe many of the region’s problems could be fixed with a vibes shift. “There is a risk that the doom and gloom becomes self-fulfilling,” says ECB board member Isabel Schnabel. “Given the huge shocks we have had in Europe, the economic performance has not been as bad as many had feared, so we should stop talking ourselves down.”

See how your country compares in the battle against rising prices with our global inflation tracker.

Need to know: UK and Europe economy

UK wage growth remained persistently strong in the three months to March, at 5.7 per cent, despite a slowing jobs market. Ministers have been urged not to axe a graduate visa programme as part of their attempts to cut migration numbers.

Few finance ministries wield as much influence over national affairs as Britain’s Treasury, says the FT editorial board. Change is needed, including giving growth the same importance as scrutiny over spending, the piece argues.

Former UK minister Peter Mandelson argues in the FT that the green transition can kick-start a revival in manufacturing if the government nurtured potential winners.

The EU said it would freeze Georgia’s membership bid if Tbilisi enacts a controversial “foreign agents” law that critics say is inspired by Vladimir Putin’s Russia. The law was passed amid mass protests yesterday. Ukraine’s neighbour Moldova is set to defy Russia, however, and join an EU security pact.

Need to know: Global economy

The US sharply increased tariffs on electric vehicles from China, as well as batteries and semiconductors. The “strategic sectors” targeted also included aluminium and steel, critical minerals, solar cells, port cranes and medical products.

Here’s an explainer on the clean tech trade spat and more on why US President Joe Biden and his wannabe successor Donald Trump are falling over themselves to prove who can be toughest on Beijing. A senior executive at China’s Great Wall Motor said the west’s claim of the country’s overcapacity in electric vehicles was a “fake concept”.

The International Energy Agency trimmed its forecast for growth in oil use this year after milder weather and a slowdown in the world economy brought down consumption.

Polls suggest South Africa’s general election on May 29 could result in the ANC losing the absolute majority it has commanded since 1994. The party is relying on loyalists outside cities and campaign knowhow as it battles to cling to power.

Russia’s vote to disband a UN panel monitoring sanctions on North Korea is a blow to nuclear non-proliferation efforts. Any new body, however, would face opposition from Beijing, which has been angered by western military surveillance of seaborne trade with North Korea near Chinese airspace.

A $2.2bn plan from the International Energy Agency aims to fund better cooking methods across Africa in the “largest-ever pledge” to tackle health issues from the use of the dirtiest fuels. Funding comes from big oil and gas companies as well as the public sector.

Need to know: Business

Anglo American, the 107-year-old mining company, plans to break up as it tries to win over shareholders following its rejection of a £34bn takeover bid from rival BHP.

The head of Petrobras, Brazil’s state-controlled oil major, has been ousted following tensions with the left-wing Luiz Inácio Lula da Silva administration. Jean Paul Prates is the fifth CEO of the company to leave in three years.

British fashion house Burberry blamed slowing demand in luxury goods for a fall in annual revenue and profits, and warned the first half of this year would remain challenging. 

New analysis showed Novo Nordisk’s Wegovy drug not only helped users sustain weight loss for four years but helped reduce the risk of heart disease, regardless of their weight. Novo is also investigating effects on alcohol intake and liver disease.

OpenAI unveiled advances to its flagship GPT-4 software model, including the ability to interpret voice, video, images and code in a single interface. The company is also losing its co-founder and chief scientist, six months after he and others moved to oust CEO Sam Altman.

If electric cars are really to take off in the US, a rethink of the economics of roadside charging is needed, writes columnist Brooke Masters.

The new season of our Tech Tonic podcast on China tech discusses the rise of Shenzhen, known as China’s Silicon Valley.

The World of Work

The Working It podcast discusses the difficulty of measuring productivity in office jobs, how to achieve more without getting overloaded, and why you should sneak off to the movies on a Tuesday afternoon (without telling your boss).

Some good news

Beavers were hunted to extinction in England in the 16th century. But after being reintroduced into London last October as parts of efforts to rewild the city, the furry rodents are now thriving.