And then there were three, maybe

The trend started last week after the better-than-expected CPI data; a flattening of the yield curve as longer rates rose relative to shorter rates continued this week as the market is now pricing in the near certainty of a Trump 2^nd term. Not only that, but the market is now starting to think about not one but the possibility of three rate cuts this year. That would mean a cut at every meeting till the year-end, starting in September. It feels aggressive, as that would also mean a cut in October heading into the US election. Value over growth, tech underperforming, and the equal-weighted index rising, midcap index rose 3.5% yesterday.

As for the UK, voting members still talk about a wait-and-see strategy. That said, August is coming onto the radar, but September is still the favourite. The Fed meeting in September is on the 17^th and 18^th, and the Bank of England follows on the 19th, so they will already know how the Fed decides when they meet. Today’s inflation data reporting inflation remaining steady at 2%, and producer prices falling boosts the odds on a rate cut. Yields on the 2 year gilt has fallen below 4% for the first time this year.

The current US economic outlook is different from that of the UK. According to an article on Bloomberg by Mr Authers, the Citi US economic surprise index is at its lowest level since 2015, while the IMF upgraded its growth forecast for the UK economy yesterday. Obviously, we are rising from a low base, and US economic growth is slowing from a much higher base. Rather as Mr Blair did in 1997, Kier Starmer is taking power with an economy in a decent state, a luxury not many new governments have. The King’s speech takes place today in parliament; we shall get the first insights from the new government as to how it plans to do as they say and improve economic growth and, as importantly, who is going to be paying for it.

Earnings season is young in the tooth, but the banks have provided pretty much what they were expected to do. United Health produced a decent set of numbers that saw the shares rise 6.5%. Today, the most notable are Johnson and Johnson and United Airlines. The IMF upgraded the outlook for the UK economy yesterday and for the global economy in 2025, as they left their growth estimates for 2024 unchanged. They believe the main engine for growth will be the Asian economies of China and India. But as always, their forecasts are covered with caveats.