He brewed white lightening till the sun went down, I took a little sip and right away I knew.

It’s been a quiet week for stocks ahead of the Federal Reserve meeting later today. There are clear signs that money managers are looking to protect their portfolios in case of an announcement, as the VIX fear index has been steadily rising over the past few days. The dollar continues to weaken, and the dollar basket is now at its lowest point since the first rate hike in 2022. Reading some FT reports, one gets the sense that a consensus negative sentiment is building for the USD.

JP Morgan analysts stated in a research note yesterday that, in their view, there is little justification for a rate cut based on economic fundamentals, given the employment rate is near full capacity and inflation remains above the Fed’s target. They believe this cut is merely an act of yielding to political pressure. In their opinion, succumbing to this pressure introduces additional risks to the capital markets. Will Jerome Powell deliver a dovish or hawkish message in the post-press conference? John Authers believes not. His view is that the message regarding the future path of US interest rates will be a neutral one.

According to the latest Merrill Lynch Fund manager survey, they now perceive a “second wave of inflation” as the most significant tail risk to markets, no longer tariffs. 58% of those surveyed think global equities are overvalued; by that, I assume they mean US equities, even though cash levels remain low relative to history, and optimism is high.

It is the turn of the Bank of England tomorrow, and there is little expectation of a rate cut being announced by the MPC, despite further evidence of a lacklustre economy. Last week’s monthly GDP showed zero growth; the only slight bright spot came from the service sector. Likewise, yesterday’s employment report offered little to celebrate, but at least it was probably no worse than expected. The unemployment rate remained steady at 4.7%. The labour market stays weak—payrolled Employees fell by 142,000 year-on-year and 6,000 month-on-month, signalling a continued slowdown in hiring. There was further bad news ahead of the November budget for Ms Reeves, as the Office for Budget Responsibility has informed Chancellor Rachel Reeves that it will downgrade its productivity outlook ahead of the November 26 budget.

All of the above would suggest a jumbo rate cut, but this morning, we received the latest UK inflation data, which explains why the Bank of England is hesitant to cut rates again, despite the mixed growth outlook. UK inflation remains at 3.8% year over year, and the Retail Price Index is at 4.6%.