Hello there,
Hotter-than-expected U.S. gave everyone this week. The price of grabbed a lot of headlines – up 15%. But supply shortages are to blame for that surge - avian flu is knocking out chickens. Not much the Fed can do about that.
Consumer price index (CPI) numbers have a habit of overshooting in January because companies tend to hike prices at the start of the year – the cost of motor vehicle insurance jumped 2% for example. So, is this a seasonal thing, just a "January effect"? We won't know for a few months, and investors aren't taking any chances. They've scaled back expectations of more policy easing from the Fed to just one cut late in 2025. Some analysts – whisper it - are even talking about the "off-baseline scenario" of a rate hike. By comparison, traders expect the European Central Bank to cut three more times this year, on top of the five cuts already delivered since June.
The interest rate gap between the Fed and other major central banks is the topic of this week's Econ World . "Decoupling", central bank-style, seemed an appropriate theme for Valentine's season. I'm joined by our ECB Chief Correspondent for a look at the potential for financial heartache from this policy divergence. Listen .
Investors are expecting more interest rate cuts from the Bank of England but the BoE's chief economist that it needs to move cautiously. Huw Pill says the long process of wrestling down inflation is not yet complete and the UK's problems – a shortage of workers, weak business investment – would not be solved with sharp rate reductions.
The did unexpectedly pick up late last year. Fourth-quarter GDP grew by 0.1% but closer scrutiny shows it relied on government spending and a likely temporary build-up in companies' inventories, while business investment dropped by a hefty 3.2% on the quarter and household spending was flat.
The outlook for Britain is still rosier than Germany. Europe's largest economy, which heads to the polls next week, is expected to for the third straight year in 2025 – the longest period of weakness in Germany's post-war history.
No wonder investors are looking for glimmers of hope in Europe - where they can find them. The region's leaders about President Trump's on Ukraine peace talks but markets are seeing a financial upside. The euro rose and rallied on hopes that peace in the Russia-Ukraine conflict could boost business confidence and investment and cut energy costs.
Speaking of costs, wants a 10% gain in efficiency over at JPMorgan. That means 10% cuts in reports, meetings, documents and training sessions. And in a town hall meeting this week, he had words for employees who launched an online petition seeking to change his mind on the bank's five-day return-to-office policy: "I don't care how many people sign that fucking petition".
And finally, for all those who celebrate, a happy St Valentine's Day. If you're contemplating investing in a pricey box of chocolates ( are on a tear after all), just remember: Money can't buy you love.
As always, I'd love to hear from you by hitting reply on this email or finding me on LinkedIn.
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