Tuesday May 7 2024 12:14
5 min
The FTSE 100 index jumped above 8,300 for a fresh record high in buoyant trade early on Tuesday as London reopened following the holiday. There is something of a catchup trade taking place with stocks in Frankfurt enjoying a strong session on Monday and more modestly higher this morning.
There was a positive session on Wall Street again as the Dow Jones index advanced for a fourth straight day in the wake of the less-hawkish-than-feared Fed and the S&P 500 rose 1%. It’s not all been rosy, but earnings have helped satisfy risk appetite.
Year-to-date, the S&P 500 is up 8.6% while the FTSE 100 index is up 7.32%.
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The Reserve Bank of Australia left rates unchanged, and its statement continued to say “the Board is not ruling anything in or out” as it raised its inflation forecast for the year.
Japan’s top currency diplomat Kanda warned on the yen that “when there are excessive fluctuations… the government may have to take appropriate action”. Yes...we saw that last week!
This week the focus will be on the Bank of England, which needs to decide whether it is time to steer the market towards a cut, which would be the first in four years, or remain more patient.
Most think it’s too early to cut UK interest rates this week – August is preferred as the starting date, but the Monetary Policy Committee is not speaking as one. Dave Ramsden, the BoE’s deputy governor, suggested last month that he did not need to see much more evidence of falling inflation to vote for a rate cut.
He emphasised the “downside risks” to the BoE’s February inflation forecast, which predicted CPI inflation would fall back to 2% before rising later in the year. Huw Pill, the Bank of England’s chief economist, sounded more hawkish in April, saying that he felt “relatively cautious” about starting rate cuts.
UK inflation is coming down and will be falling back to 2% soon. CPI fell from 3.4 per cent to 3.2 per cent between February and March, whilst core inflation fell to 4.2% from 4.5%, but it’s likely the BoE will want to see the April data before making a decision.
On the other hand, wage growth at around 6% shows there is still heat in the labour market. Financial markets think the Bank of England will cut by August, but the BoE might signal it’s ready to move in June, in tandem with an expected move by the European Central Bank. A dovish hold is expected.
Headline inflation is coming down. As per BoE Deputy Governor Dave Ramsden:
“For me, the balance of domestic risks to the outlook for UK inflation, relative to the February MPR forecasts, is now tilted to the downside, with a scenario where inflation stays close to the 2% target over the whole forecast period at least as likely.”
For the hawks, the stickiness of services inflation is a worry. Chief Economist Huw Pill warned "We still have a reasonable way to go" before he is convinced the 2% target is comfortably in view and therefore "the time for cutting Bank Rate remained some way off".
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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