There was a wake-up call for investment markets on Tuesday, as higher-than-expected US inflation data created concerns over the timing of interest rate cuts. This, in some ways, gives credence to the Federal Reserve’s (Fed’s) stance amid mounting criticism over their deliberation around cutting rates.
UK wage growth is proving more resilient than forecasted which is also likely to delay any decision in the UK regarding a cut in rates, despite the UK falling into a technical recession. Yet, expectations of a soft landing and a shallow recession also plays into the hands of the Bank of England’s (BoE’s) cautionary stance. Figures released on Wednesday however, showed that UK inflation figures had unfolded as expected.
In today’s communication, we develop our thinking about how technology is influencing and indeed skewing stock market returns. This follows on from last week’s insight from LGT Wealth Management. This week, I have paraphrased an excellent article from JPMorgan Asset Management.
Today’s agenda:
- US inflation disappoints!
- UK inflation holds steady
- UK wage growth slows but not as much as expected
- Cut interest rates now!
- Should we look outside of the Magnificent Seven?
- Summary
US inflation disappoints!
US data showed that inflation has eased but not by as much as the markets expected. Markets don’t like to be disappointed!
According to an article in ft.com, this now means that the likelihood of a rate cut in May, implied by futures markets, fell from 50% to less than 30% while the chances of a cut in March were almost fully eliminated.
As a result, the two-year Treasury yield moved by its biggest one-day percentage since March 2023. Yields rise as prices fall. Equity prices also pulled back sharply before climbing back to previous highs by the end of the week.
Continues….
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Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.
