The first cut is the hardest

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Despite the UK’s annual rate of inflation falling to the Bank of England’s target of 2% this week, the upcoming election meant the voting public was given no clues as to what the Bank thought this would do for the outlook on UK interest rates. The vote diplomatically remained the same 7-2, in favour of keeping rates where they are and no press conference from Mr Bailey. For those who want to know what the market made of it all, smart money, if there is such a thing, is now seeing its first cut in September. According to GfK, consumer confidence improved for the 3rd consecutive month to the strongest level in 2.5 years. This morning the improving consumer confidence was reflected in the latest retail sales data which blew away expectations, rising by almost 3% month over month. Lower prices and strong services looks like its further boosting the economy, but nothing much seems to help Mr Sunak if the polls are to be believed.

The Bank of England and the Fed may be waiting for the first cut, the Bank of Switzerland went again yesterday. The second this year the first being in March., as they fear further strength in the Swiss Franc against the euro.

For a change yesterday, the Dow went up, and the Nasdaq fell; Nvidia only briefly held the top spot of the world’s largest company, as Microsoft reclaimed that honour at the end of Thursday evening. Some weaker US housing data and a higher-than-expected jobless claims report could further indicate that the PCE report due out next week could show a further fall. One hears about new record highs for the S&P, but it is worth noting that aside from the tech sector, up almost 10% this month, and communication services just in the blue, all the other 9 main index subsectors are lower. The bull market remains concentrated.

Although sentiment for stocks against many metrics is apparently becoming stretched, and the latest AAII retail investor sentiment survey largely backs that up, higher interest rates have driven record flows into money market funds, according to a report from First Trust. There are now over 6 trillion dollars sitting in money market funds, despite the S&P climbing higher almost on a daily basis. That number is far higher than 2008 for example. I guess it does tell you that should we get a correction at some point and rates start to fall, there would appear to be some firepower available. 

England football team doing well in tournaments can often have a positive effect on consumer and economic sentiment. Although so far, England’s players have given us little in the way of style to cheer on, we remain at the top of our group and are almost certain to go through whatever we do in the next game on Tuesday.