Inflation fears

Last month America’s consumer prices inflation rate rose to 4.2% from 2.6% and this is before the full effects of the Biden stimulus plans take affect. Eurozone inflation accelerated to 1.6% year-on-year in April, up from 1.3% in March, following a sharp rise in the cost of energy compared to the height of the pandemic. UK annual inflation meanwhile more than doubled in April to 1.5% from 0.7% in March, although both remain below central bank target rates of 2% for now.  

Even more stimulus

The Senate finally passed a budget resolution moving forward legislation authorising the $1.9 trillion stimulus the President requested. This takes the amount of the global stimulus to above $22 trillion.

More fiscal stimulus

The European Central Bank (ECB) has bolstered its pandemic emergency purchase programme (PEPP) by €500bn – taking it to €1.85tn. It also announced it was extending the PEPP by nine months, until at least March 2022.

The Fed changes policy

The US Federal Reserve (Fed) announced a new policy of a flexible average inflation target, meaning it will allow inflation to run “moderately” above the 2% target after periods when it has been persistently below-target. This would potentially allow the bank to keep US interest rates low for longer.

Chancellor splashes another £30b

UK Chancellor of the Exchequer Rishi Sunak pledged an additional GBP 30 billion to support employment, on top of the GBP 133 billion in coronavirus measures he has already unveiled. The money includes over GBP 5 billion in accelerated infrastructure spending, about GBP 9 billion for employers to retain workers through the end of January, funds for home insulation, and help for homebuyers and for hospitality firms.

BoE increases QE

The Bank of England increased quantitative easing by £100bn and kept base rates at 0.1%. That takes the total to £745 bn. The program was started with an initial £200 bn back in 2009.

UK government being paid to borrow money!

The government has sold a gilt with a negative yield for the first time. An auction by the Debt Management Office of a gilt maturing in July 2023 sold at an average yield of -0.003 per cent.
A negative yield means that the government is effectively being rewarded to borrow as investors agree to be repaid slightly less than they lent.