Aggressive use of industrial policy by the world’s most powerful economies risks becoming an expensive mistake that could trigger a tit-for-tat subsidy war, the International Monetary Fund has said.

In a warning shot to governments around the world, the IMF said attempts to increase innovation only worked under certain limited conditions and were not a “magic cure” for slow growth.

Era Dabla-Norris, the deputy director of the IMF’s fiscal affairs department, said:

“History shows that getting industrial policy right can be a tall order, and there are many cautionary tales of policy mistakes, high fiscal costs and negative spillovers to other countries.”

Investec have changed their view of US interest rates on the back of this afternoon’s stronger than expected March CPI release.

They now expect just two quarter-point cuts to interest rates, having previously forecast three cuts this year.

Investec’s Philip Shaw explains:

The Fed will now be less convinced that inflation is heading sustainably towards its 2% PCE target and seems likely to become increasingly cautious about bringing interest rates down.

Indeed it is difficult to envisage committee members claiming that they are data driven, but ignoring a run of poor inflation numbers and then easing policy. Moreover with the labour market strong and few signs of a wider economic slowdown, the FOMC has time to assess the inflation outlook for a while longer without a serious risk of triggering a recession.

Accordingly our baseline case is now that the FOMC will pass on a rate cut in June and we now see two 25bp moves over 2024 (from three previously), most likely starting in September. Our end-year forecast for the Fed funds target range is now 4.75%-5.00%.

Sterling has now lost a whole cent against the resurgent US dollar today, with the pound down 0.8% at $1.2575 this afternoon.

Here’s the views of Mohit Kumar, chief European economist at Jefferies, on today’s hotter-than expected US inflation report:

• Inflation numbers weakens the case for a June cut from the Fed, particularly as the super-core inflation remains high.

• We are in the camp of fading the initial reaction. Our view still remains that whether we get two or three cuts from the Fed is not the right question. The right question is that if we see weakness in the economy will the Fed react. And the answer to that question still remains yes.

• Hence we favour buying dips in risky assets.

• We continue to see a rangebound market for rates and do not see the sell-off as the start of a sustained move higher in rates.

European stock markets have dropped to a one-month low this afternoon.

The pan-European Stoxx 600 index fell 0.6% to its lowesst since mid-March, with property and financial stocks leading the fallers.

Today’s US inflation report isn’t as bad at it looks, insists, Preston Caldwell, chief US Economist at Morningstar:

“The core inflation news isn’t as bad as it looks at first glance, increasing 0.36% month-over-month. Subtract a few hundredths of a percentage point and the headlines would be far less alarming.

Caldwell adds that core US inflation was partly pushed up by components which don’t feed into the PCE index, which is another inflation measure favoured by the Federal Reserve, adding:

As such, core PCE inflation is likely to come in around 0.2% to 0.25% month-over-month for March, much milder than core CPI.

If core PCE inflation ends up around 0.25% or higher, chances of a Fed Funds Rate cut in June become less than 50%, though not impossible. If core PCE inflation ends up at 0.20%, then a June rate cut is still more likely than not in our view.”

US central bankers are very unlikely to cut interest rates in June, as some investors had previously hoped, explains Seema Shah, chief global strategist at Principal Asset Management:

“Today’s crucial CPI print has likely sealed the fate for the June FOMC meeting with a cut now very unlikely.

This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip.

In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making.”

Wall Street’s main stock indexes are set for steep losses after today’s hotter-than-anticipated inflation report.

Hopes that US interest rates could be cut as soon as June are being dashed by the annual 3.5% increase in inflation last month – well over the Fed’s 2% target.

The Dow Jones industrial average is on track to drop by 1.1%, while the broader S&P 500 is down 1.3% in premarket, and the tech-focused Nasdaq futures contract is 1.4% lower.

The opening bell will ring in 20 minutes….

Hopes that we might see a new high on the UK stock market today are being dashed by the US inflation report.

The FTSE 100 index of blue chip shares has lost its earlier gains, and has subsided back to 7937 points (+0.03% today).

Before the CPI report hit the wires, it was trading just below 8,000 points, just 50 points away from the record high (8,047 points, set in February 2023).

Higher gasoline price and high rent are keeping US inflation above 3%, points out Heather Long of the Washington Post:

Auto costs – to either insure or repair a car – are also on the charge, she points out:

Harvard professor Jason Furman, who chaired President Obama’s council of economic advisors, is concerned by the pace of core inflation:

Core inflation, which strips out volatile items such as energy and food, was also hotter than hoped.

The all items less food and energy prices index rose 3.8% in the year to March, dashing hopes of a fall to 3.7%.

That included a 5.7% jump in the shelter index, which tracks housing costs.

The inflation report adds:

Other indexes with notable increases over the last year include motor vehicle insurance (+22.2 percent), medical care (+2.2 percent), recreation (+1.8 percent), and personal care (+4.2 percent).

US bond prices are also falling, pushing up the yield (or interest rate) on Treasury bills.

That’s another sign that investors are anticipating that interest rates will stay high for longer than hoped.

The US dollar is rallying, as traders conclude that early interest rate cuts are less likely.

The dollar is up 0.4% against a basket of currencies, while the pound has dropped half a cent to $1.2614, as the markets digest today’s US inflation report.

The UK’s FTSE 100 share index continues to rally ahead of the US inflation report, to 7,999 points, up 0.8% or 65 points today.

If the US CPI report fuels hopes of early interest rate cuts, it could move higher, although a higher-than-expected inflation reading could push stocks down….

Global investors are bracing for the release of the latest US inflation figures in 15 minutes time.

The expectation is that Headline CPI for March will rise to +3.4% year-on-year, from +3.2% previously, showing that prices rose at a faster rate last month.

David Morrison, senior market analyst at Trade Nation, says:

If so, that will mean that it has tracked sideways for the past nine months, having fallen to a 25-month low of 3.0% in June last year. This is not the kind of data that will encourage the Fed to cut rates anytime soon.

In the auto sector, Volkswagen Group has reported a drop in deliveries of electric cars in Europe this year.

Volkswagen says deliveries of all-electric cars in Europe were down 24% year-on-year in the first quarter of 2024, at 74,400 vehicles.

Overall, shipments of all-electric Volkswagens fell 3% to 136,400, despite a 91% jump in sales to China.

But overall, Volkswagen Group increased its deliveries in the first quarter of 2024 by 3% to 2.10 million vehicles. The main growth drivers were China (+8%), South America (+14%) and North America (+5%).

Shares in Tesco are continuing to push higher.

They’re now up over 4% at 299p, making them the top riser on the FTSE 100 index.

Russ Mould, investment director at AJ Bell, argues that Tesco is reaping the benefits of “putting the customer first”:

For some time, it has been lowering prices on core lines in recognition that consumers are under financial pressure. That’s helped it to maintain appeal to a large number of shoppers and retain their loyalty while also helping it better compete against Aldi and Lidl. The results are clear to see – profit is going up; the business is in great shape; and it is growing market share.

A lot of companies have reported a rise in revenue in recent years that’s simply been down to raising prices. What’s more important is looking at sales volumes as any growth indicates the customer is buying more products rather than simply shelling out more for the same items. Volume growth indicates a healthy business. On this basis, Tesco is fit as a whistle.

“It’s helped that Tesco has benefitted from people trading down from higher end retailers. Accepting that a high interest rate environment means more careful monitoring of how money is spent, even wealthier individuals have taken steps to shift their spending habits. Whereas once they might have been happy to spend big at Waitrose or Ocado, some of these consumers have shifted to Tesco and found that its Finest range still offers the higher quality products they desire, but at a cheaper price point.

“A good company will always take the spoils of a fruitful period and reinvest the winnings back into the business. That’s precisely what Tesco is doing now. It is using AI to drive productivity, putting automation technology at the heart of a new distribution centre, and making the supply chain more efficient among other activities.

UK government debt remains in demand.

An auction of British government bonds today attracted the strongest demand from investors for gilts since April 2020, Reuters reports.

The Debt Management Office sold £4bn of the 3.75% 2027 gilt and attracted orders worth £14.7bn - a ratio of 3.68.

That’s the highest ratio of orders to bonds on offer, known as the bid to cover ratio, since April 2020.

Even though inflation pressures are easing, millions of households are still struggling.

More than 7.4 million people in the UK struggled to pay a bill or a credit repayment in January, according to financial regulator the FCA this morning.

That’s significantly higher than before the cost of living crisis began, although lower than last year when prices were rising at a faster rate.

The FCA is reminding consumers in financial difficulty that lenders are obliged to listen to customers’ concerns, and that discussing options with a lender won’t hurt your credit score.

Steve Vaid, chief executive of the Money Advice Trust, the charity that runs National Debtline, says:

“Millions of people are still struggling with this cost of living crisis, and we all need to do more to make sure they get the help and support they need.

“The FCA’s decision to make permanent its pandemic-era protections for people in debt is a welcome step – and the regulator has set clear expectations for firms on the crucial role that debt advice plays.

Britain’s air traffic services provider has turned to the former chief of Rolls-Royce, after last summer’s meltdown which caused thousands of flights to be cancelled.

Warren East will take over as chairman of NATS in September, it announced this morning.

Chief Executive Officer, Martin Rolfe says East’s knowledge and insight into the aviation sector, and his experience of technology-led transformation, will be “enormously valuable”.

East left Rolls-Royce on New Year’s Eve 2022 after an eight-year stint at the jet engine manufacturer, having previously run Arm, the Cambridge-based chip designer.

Tech expertise will be welcome, as NATS is currently modernising its systems, upgrading the technology its controllers use to manage air traffic.

NATS was under fire last year after its service was disrupted by a wrongly input flight plan which led to hundreds of thousands of passengers’ flights being disrupted.

In the City, the FTSE 100 share index has risen in early trading, as investors anticipate this afternoon’s inflation report from the US.

The Footsie, which contains the largest hunded companies listed in London, is up 43 points or 0.5% at 7977 points.

That takes it near last week’s one-year high, and not too far from the alltime high of 8,047 points set in February 2023.

Grocery firm Ocado are the top riser, up 4%, amid a general rally in tech stocks.

Shares in Tesco have jumped 1% in early trading, to 290p.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says this morning’s results have lifted optimism:

Tesco has shown once again that it deserves its best-in-class crown. Underlying retail profit has come in a smidge above upgraded guidance at £2.76bn, as the group’s efforts to beat rivals on price pays dividends.

Crucially, the supermarket is seeing volumes pick up once more, which is a saving grace as inflation tempers. If prices can’t rise, you need customers to buy a higher number of items if margins are to stay intact.

The group’s stellar proposition has meant it’s been able to increase the full year dividend by 11%, thanks to the substantial levels of cash pumping through Tesco’s veins

Tesco is planning to make £500m in efficiency savings in the year ahead.

It will cut costs with new techniques, including a robot-led distribution centre for fresh produce and fitting 100 stores with solar panels over the next three years. More here.

Tesco predicts that food inflation will stabilise in low single digits for the rest of the year.

CEO Ken Murphy is speaking to reporters now, and explains:

“I see that stabilising, that kind of low single digit for the rest of the year is our planning assumption.”

Murphy adds that inflation is still sticky for some products, such as cocoa (where poor harvests in extreme weather conditions have led to a tripling of prices), potatoes and coffee.

UK union Unite has taken a swipe at Tesco for growing its profits in a cost of living crisis.

Unite general secretary Sharon Graham says:

“Tesco is raking in mountains of cash while families struggle to put food on the table because of sky high prices. Many companies have used the cost-of-living crisis to grab excessive profits.

“There is an epidemic of profiteering in our economy – the government has been missing in action and failed to curb it.”

Tesco would doubtless deny accusions of profiteering.

Today’s financial results show it ran operating profit margins of 4.2% in the UK and Ireland in the last financial year – which is 42 basis points higher than the previous year.

Tesco adds that its current year operating margin is now similar to pre-pandemic levels.