A newsworthy week

As expected, the Fed and the Bank of England both left interest rates unchanged, but both dangled the carrot of cuts in the coming months. The Fed chair presented a positive view of the current state of the US economy, noting that economic activity continues at a solid pace, the unemployment rate remains low, and labour market conditions are robust. Inflation remains somewhat elevated. I suppose the conclusion is that there is currently no need to cut rates; what’s the rush? The 2-year US treasury was essentially unchanged post the Fed announcement, suggesting the market largely anticipated the outcome of Wednesday’s meeting.

The Bank of England’s statement focused on inflation, which it describes as persisting, noting that “given the outlook, and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.” The monthly inflation rate released on Wednesday showed a very modest drop month on month to 3.4%, but it remains well above the Bank’s 2% target.

The Whitehouse released a statement that the President will decide within 2 weeks whether to strike Iran. The oil price remains around 74 dollars a barrel.

The most notable market move this week was the rise in the VIX index, which suggests that investors are becoming more cautious as we enter the summer months. Given the current political backdrop and economic uncertainty, this is understandable.

What was possibly unexpected, considering the news flow this week and the spike in the oil price, was that the latest AAII retail investor survey revealed pessimism among individual investors about the short-term outlook for stocks decreased. Meanwhile, optimism and neutral sentiment increased.