With your feet on the air and your head on the ground

Six central banks met last week, and we know the results of the Bank of England and the Federal Reserve. The other four include the Bank of Brazil, which raised its rate by 25 basis points to 10.25%, Norges Bank left its rate unchanged at 4.25%, Bank of Japan likewise left its rate unchanged, and finally Bank of South Africa left its rate at 7.25%.  Of the six central bank meetings, the Fed was the only one to cut interest rates. This morning, China kept its benchmark lending rates unchanged for the fourth straight month. There was a myriad of US economic data released last week, with some positive and some slightly less so. The best way I find to synthesise the net result of the reports is via the Citi economic surprise index, which, for choice, has moved lower in the past week or so, indicating that overall data is coming in slightly weaker than expected. By the end of the week, all major US indexes had hit record highs, including the Russell 2000 small-cap index. The FTSE 100 fell modestly on the week.

In the past week, asset classes across the board reacted to the interest rate and economic news with great indifference. For choice, the US yield curve steepened marginally, the dollar fell at the start of the week, but by the end, it finished roughly where it started. The Vix index rose very marginally over the past 5 days but remains at a level to indicate confidence that the rally has further to go. UK gilt yields remain roughly where they were across the board, from the start of the month.

The upcoming week will feature the release of the monthly S&P Global Flash PMIs. Prior to this, S&P Global published its latest forecasts for the global economy. They have uplifted their annual real GDP growth projections for 2025 in several key economies, including the US, Japan, Brazil, India, and, possibly, the biggest surprise, the UK. However, a note of caution is necessary: at the global level and in most major economies, they project weaker growth in the second half of the year compared to the first. This reflects various headwinds, including the unwinding of the previous boost from tariff frontrunning and still high levels of uncertainty. Regarding inflation, the latest monthly figures indicate that the global consumer price inflation rate has been trending sideways at a rate of just over 3% since February.

Other data points the market will be looking for, aside from the PMIs, will be released closer to the end of the week. These include the monthly Durable Goods orders, Jobless claims on Thursday, and then on Friday, we get the Personal Consumption Index, a measure of inflation, as well as the Michigan Consumer Sentiment and inflation expectations. Aside from the flash PMI, there is not a lot coming from the UK this week. Markets overall are starting the week a tad weaker.