BoE outlook key as we seek clarity over June meeting

European markets are treading water in early trade as the looming interest rate decision from the Bank of England bring greater uncertainty after a period of outperformance that has seen the FTSE 100 hit record highs on a daily basis. The dollar looks set for another day of gains, with the greenback rising into a fresh one-week high as concerns build over a fresh resurgence in inflationary pressures. Comments from Fed member Collins highlighted the view that rates will likely have to remain elevated for some time yet, as price pressures continue to hinder efforts to normalize monetary policy. As things stand, the US economy looks to be in relatively rude health, although that could be a problem when it comes to driving down inflation,.

Today’s Bank of England rate decision looks to be more about the outlook rather than current rates, with markets pricing a mere 4% chance of a cut this time around. UK 10-year treasury yields have started to creep higher in early trade today, with traders clearly concerns that we could see a hawkish push from Bailey & co as recent inflationary pressures hamper calls for a swift dovish pivot from the BoE. With that in mind, the breakdown on votes and Bailey’s comments will likely provide the basis for volatility today, with markets currently showing major indecision over whether we will see the first hike in June (currently priced at 45%).

A resurgence in oil prices has hindered market sentiment this morning, with US crude looking to follow up on yesterday’s inventories driven rebound. With US crude inventories posting a 1.3-million-barrel drawdown, there are concerns that we could be entering a seasonal contraction in oil stocks as we kick-off the so-called driving season. Unfortunately, Joe Biden’s efforts to keep a lid on prices have come at a cost, with the Strategic Petroleum Reserves now at a 40-year low. With the DoE likely to provide a fresh source of demand going forward, there is a hope that the Israeli push further into Gaza does not spark a fresh rebound for oil prices. Coming off the back of a period that saw WTI lose $10 over the space of a month, the near $3 rise seen since yesterday’s low does raise concern that we could yet see another period of strength for oil.