A fun week ahead for Central Banks

The rise in US stock markets may be running out of steam, with the S&P 500 finishing another week close to where it started. The FTSE 100 was a slightly better week for a change, with energy shares benefiting from the higher oil price. This week, the Federal Reserve meets to decide it won’t change interest rates for another month. Later on Wednesday, Jerome Powell will try to explain how they will navigate what’s becoming a more and more complicated economic picture. Inflation rates have been coming down but are now proving stubborn, wage growth remains a problem as labour markets remain tight, commodity prices are ticking higher, and energy is in particular. There are signs the economy is tiring, having remained remarkably resilient. Friday’s Michigan consumer confidence report recorded consumer confidence falling for the third month in a row. The market expectation of at least five rate cuts at the start of the year is now questioning if three is becoming too optimistic. US ten-year treasury yields are their highest for three months.

There was some good economic news out of China this morning. Industrial Production came in ahead of expectations, as China continues to find a way to grow its economy at the forecast 5%.

Sentiment for equities remains positive. According to the National Association of Active Investment Managers, money managers remain highly optimistic for the year ahead for stocks. Money flows into equities remain strong, and US  households are as overweight equities as they have been since 2000. That, in part, may be due to the strong rally we have seen in US equities.

It’s a busy week for the Bank of England, and this week, the Monetary Policy Committee will likewise meet to agree on no change to UK interest rates. At last month’s meeting, we had a mixture of voting: some members voted for a cut, others for no change, and some for an increase. We will see where the bias is this month. Ahead of that meeting, we get the latest Consumer Price Index, in which inflation is expected to fall further from 4% in January to 3.5% in February. The recent rise in the oil price could result in a slight uptick in input prices. We also get the flash composite PMI for March, which is expected to show another uptick. UK politics remains in the headlines as there are constant threats that the Conservative members want now to oust Rishi Sunak. They shoehorned him in; now they are apparently prepared to abandon him. All this speculation could well increase the odds of Mr Sunak going to the polls sooner rather than later. Rather be thrown out by the populate rather than his own colleagues.  

Finally the Bank of Japan meet this week and we will hear if the Bank of Japan will lift interest rates next week, in a move that would end its eight-year experiment with sub-zero borrowing costs.