Cut and Run?

There is a definite sense that central banks are prepared to tolerate higher inflation and are ready to cut – or already have. Indeed, why shouldn’t they? Suppressing yields and pushing up inflation has been their stated aim for well over a decade. Now they have it and want to keep it – hiking interest rates into the oblivion of unemployment and recession was never the plan.

Challenging Times for Savers?

Moreover, higher inflation and suppressed yields are positive for the debt burden. It’s just not so positive for the rest of us who work hard and expect our money to be “sound” and our policymakers to be responsible with our money.

Stocks Surge as Federal Reserve Signals Incoming Interest Rate Cuts

Equity markets have roared higher after the Federal Reserve signalled it’s not worried about sticky core inflation and still plans to cut three times this year. Even this, it should be noted, represents far fewer interest rate cuts than the market had anticipated at the start of the year.

Its ability to digest such a change in rates futures is indicative of the bullishness, and the fact that an awful lot of money has been printed and will be printed. Central banks are keen to top up the punchbowl; if the last mile on inflation is so hard, why tire yourself out needlessly? 

Mixed European Markets, Yet Record Highs

European stock markets were a little mixed early on Friday, though it’s been a positive week. The FTSE 100 continues to rally, now breaking up above 7,930 to test the Apr ‘23 swing highs. The DAX index was steady, whilst the CAC dropped a bit. U.S. stock markets rallied again on Thursday with the S&P 500 up almost 2.5% for the week, clearing all-time highs above 5,200.

There were some big moves yesterday in individual stocks – Micron Technology jumping 14% on earnings, Reddit rising 48% on debut and Apple slipping 4% after the DoJ filed an antitrust lawsuit against the company.

Forex Movements as Central Banks Start Acting, DXY Index Above 104

Meanwhile, the dollar rallied, with the DXY index above 104 as pressure came on other currencies in the wake of the SNB’s decision to cut, along with the rather dovish mood at the Bank of England. The Swiss National Bank started the countdown for the ECB after it announced an interest rate cut yesterday, so even Fed dovishness is not a barrier for the dollar.

GBP/USD tests the 200-day line again this morning at 1.26.

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