Stocks hit new highs as central banks weigh evidence for cuts

Macro Commentary

US stocks powered to new all-time highs this week, despite the slightly firmer inflation print of 3.2%, with yields higher across the board. The Fed meet next week, with the recent economic data increasing the probability of an initial rate cut in June, as they look for clear evidence of inflation dropping to the 2% target on a sustainable basis.

The Bank of England also meet next week, with markets continuing to forecast the first rate cut in August, and a total of three cuts this year. The latest jobs data showed further signs of cooling, with wage growth easing to 6.1%, which although still too high for the Bank of England, should help keep inflation on a downward trajectory. The economy returned to growth in January driven by the services sector, expanding 0.2% following the technical recession at the end of last year.

A busy data calendar for the UK next week, including inflation and retail sales, should add to market volatility.

The European Central Bank continues to indicate they will likely begin an aggressive rate cutting cycle in June, with up to 1% of cuts currently priced in, against the backdrop of a hugely challenging growth outlook.

On the exchanges, GBP/USD has eased lower from its year-to-date high towards the 1.2900 level, whilst GBP/EUR remains near the top end of its well-established range of 1.1500 – 1.1750.

GBP/USD – 1-year chart

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*Bloomberg survey / Not available

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