This week, we get to hear what the Central Banks think of the events of the past weeks.

Understandably, the weekend press was dominated, almost to the exclusion of anything else, by the events in the Middle East. The fact that Trump is now demanding that NATO allies assist him may suggest all is not quite going according to plan. Trump’s latest effort to overthrow the current regime was to attack Kharg Island, which is home to an oil terminal that ships 90 per cent of Iran’s oil exports. One might have expected a stronger reaction in oil prices, but it currently remains just over $100 a barrel, where it’s been for most of last week. For now, the mission targeted only Iran’s military capabilities there, while avoiding damage to the oil infrastructure.  

So far, the impact of the war on stock prices has been meaningful but so far not dramatic. Most major developed indexes are lower by between 5 and 8 per cent from their peaks of a few weeks ago.

It’s a big week for central bank meetings, in particular the Federal Reserve and, closer to home, the Bank of England. We also get Central bank policy meetings taking place in the eurozone, Japan, Canada, Switzerland, Australia, Brazil, Sweden, Taiwan and Indonesia

We shall learn more this week from the Federal Reserve as it meets to discuss interest rate policy. As investors will want the Fed to assess inflation risks amid US-Iran tensions and their implications for future monetary policy. Market traders are no longer expecting US interest rate cuts this year. There is also a raft of economic data from the US out this week, but under current conditions, it is a little meaningless.

 The Bank of England has a tougher call to make; Friday’s GDP data continues to indicate an economy that’s barely growing. Before the events of the past few weeks, inflation forecasts were that the rate of price increases was going to continue to fall back towards the Bank of England’s 2% target. Given the tightness of the previous vote, it was not unreasonable to expect a 25-basis-point cut at this week’s meeting. The events of the past week, that hope has probably gone out the window. 2-year gilt yields, which had been hovering around 3.5%, are now above 4%, reflecting the reduced likelihood of near-term rate cuts.

The one major economic report that would probably have further influenced the BoE ahead of the meeting would have been the monthly employment report, released on Thursday. This month’s report is expected to show the unemployment rate remaining above 5% while wage inflation continues to ease. The best hope for the BoE to act may be in the summer. The ECB is likewise unlikely to do anything with interest rates this week, but some council members were already turning a little hawkish; recent events will further concern them.  

Possibly, as there has been no further reaction to the oil price, stocks are looking to open slightly higher in Europe this morning.