Optimism abounds

As widely predicted, the Bank of England cut interest rates by 25 basis points, and with its latest economic review, it forecasts lower growth and higher prices. That is a combination that policy rate-setters don’t cut and run the risk of the economy slowing further, cut and risk pushing prices higher again.  The vote was 7-2 in favour. Currently, the committee members focus on the weakening economy, hoping the rise in inflation is temporary. Two members of the MPC voted for a 50 basis point cut. The pound fell, and stocks went up.

It was a quiet day across the pond; Amazon followed Alphabet, reporting earnings, and both stocks drifted lower as neither report provided fresh impetus for investors. Amazon, Alphabet, and Microsoft all voiced their caution on cloud services, mainly because they lack data centre capacity. Later today, traders will be at their desks waiting on the monthly jobs data. It is fair to say that today’s payroll report is unlikely to change the Fed’s position on interest rates; what it may do is give the members of the Fed a clue as to the underlying strength of the jobs market. We will also get the unemployment rate, which is expected to be unchanged at 4.1%, and average hourly earnings, which are expected to rise 0.3% month over month.

The UK stock market hit new highs this week, having had a solid start to the year, and is outstripping, for change, the S&P 500 for now at least. European stocks likewise hit record highs, and the S&P 500 is close to or around the same. Optimism abounds it would appear. The Chinese index reached its highest level in a month. Next week will be another important week for economic data. The latest estimate of US inflation will be released, and closer to home, we get the monthly and year-on-year estimates for UK economic growth.