• Investors set to tread water ahead of U.S. inflation snapshot
• BoE rate decision due Thursday
• Discretionary spending set to be curtailed after Coronation and Eurovision blow-out
• Halifax shows house prices fall again in April
• Warnings about US debt ceiling fail to keep investors cautious
• China's exports slow sharply

Market Report by Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown.

Investors are treading carefully ahead of the key U.S. inflation report out tomorrow as economic data becomes king while markets assess what is next for interest rates.

The Bank of England's decision on Thursday is looming large, with another 0.25% hike expected, to squeeze more exuberance out of the economy and bring down still painful inflation.

The latest British Retail Consortium numbers show the insidious effect price hikes are having.

Consumers are spending more, but gaining less for their money, with overall retail sales up 5.1% but volumes down.

After blowout on Coronation celebrations at street parties or down the pub, it's highly likely that overall there'll be a fresh tightening of purse strings in the weeks to come, particularly on discretionary items.

However, over the next few days, there may be some bright spots in spending to come, with Eurovision providing more cheer, particularly for the hospitality industry.

Already Barclaycard numbers show that ticket sales for the event in Liverpool have boosted revenues for the entertainment sector, and fans may go on a supermarket sweep to stock up for parties next weekend.

The Halifax snapshot has again demonstrated how higher rates are continuing to weigh on UK house prices, which were down 0.3% in April, with the lender expecting fresh falls in the months to come.

This should come as a warning light for first-time buyers tempted by the new 100% mortgage deals back on the market.

Although building up a deposit seems so out of reach right now for generation rent given the painful level of monthly payments, there is risk they jump in too high on the housing ladder, only to see prices fall.

Watching the property you live in fall in value while the loan borrowed stays the same is not a pleasant negative equity trap to be in, so such deals are still likely to be treated with caution.

In the U.S. every snippet of information is being closely monitored for signs that demand is falling in the economy and that the hiking cycle may be at an end.

Last week's jobs report appeared to have something for every optimist – indicating that the labour market is slowing, showing Fed policy is pushing in the right direction, but ongoing resilience in hiring is assuaging some concerns of a deeper recession.

The feel-good factor has fizzled out as investors play a waiting game for the next slice of data on the economy, while worries about the US defaulting on its debts edge higher again.

Warnings from U.S. Treasury Secretary Janet Yellen of a huge hit to the U.S. economy, if no agreement is reached on raising the debt ceiling, have failed to lighten the cautious mood.

China’s snapback, after Covid restrictions eased, is losing its spring, with exports slowing sharply in April.

While this wasn’t a surprise, given that manufacturing activity had shown signs of stalling, and the exports showed a bit more resilience than expected, the numbers are yet another warning light that China is far from immune from the global slowdown.

Domestic demand weakened by much more than expected, with imports sliding 7.9% as caution returns after the euphoria of the easing of pandemic rules.

Oil prices have again dropped back after gaining on hopes a deeper US recession might be avoided. Focus is returning to expectations of lower, slower demand as the lag effect of rates hikes take hold in the United States and Europe.