An impressive recovery this week in the US.

The ECB did cut interest rates this week by the anticipated 25 basis points, as Christine Lagarde suggested that, in her view, the war against inflation was almost won. In her words, referring to the ECB’s 2 per cent inflation goal, Lagarde said recent data “comforts us in our confidence that we are heading towards our target”. The decision to cut was unanimous. That the Fed will follow suit next week is a given by the market, just by how much. Cut too aggressively, and markets will fear the Fed have more significant concerns the soft landing scenario is at risk, and too soft slowly, the market will fear the soft landing theory is put at risk. US stocks have clawed back most of last week’s losses again this week, reinforcing the resilience of the US stock market.

On Wednesday, the monthly US CPI came in largely as expected. Headline CPI growth matched expectations, and the year-on-year core prices reading also met estimates and came in unchanged. Services inflation remains stubbornly high; on balance, although there is a chance that the Fed will go for 50 basis points, the probability remains just 25 is most likely. Later today, we get the latest Michigan Consumer sentiment survey and 5-year inflation expectations. The result of these surveys could once again influence what happens next Wednesday evening.

The Fed is not the only central bank investors will be looking out for next week as the Bank of Japan also meets. However, their policy is in direct contrast to most developed markets, as they look to tighten monetary policy. The rise in the yen this year, over 10% against the USD, resulting in the unwind in the carry trade and added to the general market jitters a few weeks ago. The Bank of Japan is not expected to change monetary policy next week, as it will probably wait until the end of the year.

Stocks around the globe look like they are finishing the week on a positive note. What has been impressive is the recovery in stocks has been fairly broad-based and not dragged higher by the tech sector. Just as the FTSE outperformed the US on the way down last week, this week it has missed out completely in the rally back.