Welcome to the latest Astute Market Overview, our chance to discuss some of the interesting happenings of the last week.

UK CPI inflation for April was released during the week. The headline figure fell to single figures from 10.1% to 8.7% – a large fall. However, given the base effects of energy that we have discussed recently, a greater fall was expected. Furthermore, when we look at core CPI, which is CPI excluding food and energy, the measure accelerated (from 6.2% in March to 6.8% in April)!

The CPI measure coming down from its highs at a slower rate than expected isn’t necessarily an issue in isolation, however, the measure of core inflation (core CPI) is increasing, which is a problem!

This surprise shows that monetary policy needs to be tighter. The next Bank of England Monetary Policy Committee decision on interest rates will be announced on 22nd June; before then, we will have another CPI reading. Save for a surprise reading showing a drastic drop in inflation, we think that the bank’s hands are tied: they must increase interest rates further.

Given that the price of food increased the most, with sugar up nearly 50% year-on-year, Andrew Bailey couldn’t afford to sugar-coat his response to the data, saying that the central bank has “very big lessons to learn”.

In anticipation of more interest rate hikes in the UK, the yield on long-end government gilts surged to levels last seen when Kwasi Kwarteng announced the mini-budget in the Liz Truss era.

While the increase in core CPI was an unpleasant surprise, we believe inflation will come down, and when it does, price increases will decelerate quickly, at which point interest rate cuts will be on the cards. These circumstances create investment opportunities in the gilt space.

In some share specific news, troubles with water companies spilled over into last week.

Pennon Group shares dipped over the week, as Ofwat investigated the accuracy of South West Water’s reporting on usage and leakages. This all comes as water companies addressed public outrage at dumping raw sewage into rivers and seas.

And lastly, it was a strong week for the Nasdaq. Nvidia shares received a boost – the technology company designs and manufactures graphics processing units, which are, according to the company, increasingly used for artificial intelligence. AI is an area of technology that is gaining momentum, evidenced in increased research and development, and by its ability to capture the intrigue of consumers. And if you’re waiting for the predictable crescendo, you may be disappointed when we confirm that this text wasn’t written by AI!!

Some of the things we’ll be watching out for this week include: Eurozone Consumer Confidence, US PMI data, and US non-farm payrolls.