Unlike our weather, the markets had been fairly benign this week in anticipation of the decisions from the Federal Reserve and the Bank of England. As expected, both kept interest rates on hold. However, the improved outlook for inflation and rates stimulated the appetite of investors, and equity markets responded very positively. Encouraging sentiment, but will it last?
We refer to Warren Buffett’s well-known phrase “the markets in the short-term are a voting machine, whereas in the long-term they are a weighing machine”. More about this later.
It’s a delicate balance for the central banks but their decisions do look to be prudent as unfolding data is pointing to quite a bit of economic and corporate pain and, subsequently, this avalanche of bad news is impacting confidence, behaviours and spending. If Central Banks are too aggressive with monetary policy, then they risk undermining financial stability.
This Week’s Agenda:
- The medicine is working
- Some pointers to what’s unfolding
- Euro inflation delivers good news
- The Fed holds rates at a 22-year high
- The BoE keeps rates unchanged
- Warren Buffett
- Market movements
- Bonds rejoice too!
The medicine is working
It appears the medicine is working, which just goes to show how close we are to the end of this cycle. There are now calls in some quarters for interest rates to be reduced. Of course, the central banks aren’t going to do that just yet for fears of reacting too early, but the negative economic news flow is encouraging. An oxymoron I think!
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