Another decent week for stock markets despite the central banks of Europe and the US  remaining hawkish in their outlook for interest rates. The Fed may not have moved interest rates this time. They did not rule out further rises in the coming months. The S&P 500 sold off towards the end of Friday but still managed to have its best week for months, and its 5th weekly gain, the Nasdaq its 8th. The sectors that had the best week were all those that one expects to do well in bull markets. The most economically exposed materials, energy, industrials and consumer discretionary. Tech stocks continue to benefit from the optimism around AI but are heading into euphoria territory, at least in the short term. The US dollar basket finished lower on the week, and yields on US treasuries rose on the week at the longer end as the curve is becoming less inverted. Merrill Lynch’s weekly flow show suggests to them the pain trade remains up.

The Fed held interest rates where they were but warned the market this does not signal the end of the tightening cycle, rates may need to rise further in pursuit of bringing inflation back to 2%. The ECB raised by 25 basis points, raising interest rates to 3.5%, the highest deposit rate for 22 years. Christine Lagarde likewise warning investors the ECB is not yet done.

It’s still all about inflation; China does not have any, according to the latest figures. Americas is coming down faster than anticipated. After yesterday’s CPI report, at 4%, US inflation is at its lowest level since March 2021. The prospect of inflation remaining higher for longer in the UK is pushing UK interest rates above the level when the financial world threw its toys out of the pram on the announcement of the Liz Truss budget. This is despite Mr Bailey’s expectation inflation will fall sharply in the coming months; UK interest rates are now forecast to peak closer to 6% than 5%.