Week Ahead (7 May)

Wednesday, 8 May – General Court to rule on Ryanair’s legal challenge to state aid granted to Condor 

On Wednesday, the General Court, the EU’s second highest court, will rule on a Ryanair state aid case. The case, Ryanair v. Commission (T-28/22), involves Ryanair's challenge to a July 2021 European Commission decision approving €525.3 million in state aid for the German airline Condor in response to the COVID-19 pandemic. The Irish airline argues that the aid was unjustified and asserts errors in law, claiming there was no evidence of market failure or necessity for the aid, and that the procedure violated its rights.

In total, Ryanair has filed 16 lawsuits against the Commission for allowing state aid to airlines across Europe, including Lufthansa, Austrian Airlines, and LOT. In February, Ryanair won its second challenge against a €3.4 billion Dutch state aid scheme in support of Air France-KLM's Dutch unit, after the General Court ruled that the Commission had not taken into account all beneficiaries within the airline group, annulling the approval of the state aid.

Thursday, 9 May – Bank of England committee to decide on interest rates; expected to keep them at 5.25% for sixth consecutive time

The Monetary Policy Committee (MPC) of the Bank of England (BoE) will meet on Thursday, with a sixth consecutive pause in rates priced in. On 21 March, BoE decided to leave interest rates unchanged for the fifth time in a row, following 14 consecutive increases from December 2021 to August 2023. The key interest rate was kept at 5.25%, which is the highest level since the 2008 financial crisis. However, BoE’s governor Andrew Bailey noted during the meeting that ‘’things are moving in the right direction’’. Notably, it was also the first MPC meeting with no votes for a hike for the first time since September 2021. While Bailey acknowledged market expectations of two or three rate cuts over 2024 as reasonable, he refrained from endorsing specific timing or magnitudes of cuts.

Last month, ONS data revealed that inflation in March slowed less than originally projected, with the rate standing at 3.2%, slightly higher than the economists' forecast of 3.1%. Despite the slowdown, prices are still rising, albeit at a reduced pace, marking the lowest level of inflation since September 2021. In a 23 April interview, BoE’s chief economist Huw Pill emphasised the importance of tackling persistent inflationary pressures before considering rate cuts and warned against premature actions by stating ‘’it is necessary to squeeze the persistent component of inflation out of the system’’. His counterpart Jonathan Haskel has also recently echoed a similarly cautious stance, suggesting that the ongoing recovery in the UK could delay the first interest rate cut. He also highlighted the need for further weakness in the labour market to ensure inflation sustainably remains at 2% in the future.

Financial markets are now pricing in a first BoE rate cut in September, with the likelihood of a second move by the end of the year seen as slightly better than even odds. This is a significant shift from earlier expectations, which had initially forecasted six rate reductions in 2024. In a recent Reuters survey, all participant economists expected BoE to maintain rates at 5.25% in May. However, investors are likely to closely follow this week’s MPC for any potential changes to the Bank’s messaging that could indicate the timing of its monetary loosening.

Friday, 10 May – ECB to release minutes of its April meeting

On Friday the European Central Bank (ECB) will release the minutes of its April meeting, where the Governing Council (GC) left interest rates unchanged for a fifth consecutive time, at a record high of 4%.  However, the ECB also gave its strongest signal that a rate cut should be expected in its next monetary policy meeting in June, stating that ‘’it would be appropriate to reduce the current level of monetary policy restriction’’.

Inflation figures released on 30 April showed Eurozone inflation remained stable at 2.4% in April, while core inflation fell from 2.9% to 2.7%, in line with economists’ expectations. However, German inflation exceeded forecasts due to a surge in food and energy prices. Spain also saw an increase in inflation in April, rising to 3.4%, compared with 3.3% in March. Furthermore, Q1 GDP growth exceeded expectations, as the Eurozone economy grew by 0.3%, marking the strongest growth since Q3 2022. This latest uptick in inflation witnessed in two of eurozone’s bigger economies was a reminder of the challenge of achieving sustainable inflation close to 2%, tempering investors' expectations of multiple interest rate cuts this year. Although a June rate cut is widely priced in, subsequent moves remain uncertain, with dovish members advocating for consecutive cuts and hawkish members proceeding cautiously.

Thus, reacting to the release of Eurostat’s latest data, Governing Council member Yannis Stournaras stated that the Bank was now considering three rate cuts in 2024 instead of four ‘’as the more likely scenario’’. Stournaras also highlighted concerns about global geopolitical developments and the US fiscal situation, warning of potential financial stability issues if US debt sustainability is disrupted. On Thursday, ECB Chief Economist Philip Lane had a similarly cautious stance, stating that ‘’a robust approach to making rate decisions under conditions of high uncertainty is to avoid pre-commitments or creating unwarranted expectations about the future rate path." ECB’s President Christine Lagarde has also stated that she will not commit to a path of pre-set interest rate cuts. 

Against this backdrop, investors are likely to pore over Friday’s minutes to look for further indications of monetary policy easing beyond June.