Thursday Jun 20 2024 12:13
3 min
European stock markets rose early on Wednesday. US stocks hit a record high again on Tuesday but were closed on Wednesday for a holiday.
The pound was steady ahead of the Bank of England decision, with policymakers likely to stand pat on rates despite inflation coming down to target for the first time in three years. US weekly jobless claims and the Philly Fed manufacturing index are also due up.
In May, after holding again, Bank of England Governor Bailey indicated that a rate cut in June was a possibility. “Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgment afresh,” he said.
“But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli.”
Wage growth is still strong at around 6%, services inflation at 5.7% - there are reasons to be cautious.
But the labour market is softening - unemployment unexpectedly jumped to a two-year high 4.4%, the biggest monthly jump since the GFC, outside of the Covid era. And there is an election coming.
I think the BoE could surprise with a cut today, but an election two weeks away means this is not likely. What it should do and what it will likely do are not necessarily the same thing.
My worry is that the BoE stays too high for too long because it is looking at the lagging wage data rather than the weakening labour market. I fail to see any reason for the Bank to be holding off any longer – time to take a leaf out of the ECB playbook and trim some of the restriction.
The Swiss National Bank (SNB) surprised markets by cutting rates by 25 basis points, even with a slight inflation increase. The SNB's revised inflation forecast, projecting a return to 1% by 2026, suggests a more dovish stance that could influence other central banks.
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