Markets have experienced another strong week, driven in part by growing confidence that monetary policy loosening is on the horizon, following a number of central bank announcements this week which struck a dovish tone with investors.
The Federal Reserve kept their policy rates unchanged, with Chair Jerome Powell contesting that recent inflation readings above expectations had not changed the underlying story of price pressures gradually easing in the US. The Fed interestingly noted that, while their cutting cycle has not yet begun, they still expect to make three cuts to borrowing costs this year and upgraded their outlook for economic growth. Similarly, the Bank of England (who also kept interest rates unchanged this week) noted that they were moving towards the point where they can start cutting rates, with Governor Andrew Bailey suggesting two to three cuts through 2024 was a “reasonable” expectation. This announcement came after the UK’s Consumer Price Inflation (CPI) reported at 3.4% for February; a reduction from 4.0% in January and lower than the 3.5% analysts expected. The Suisse National Bank were the first Developed Market central bank to begin rate cuts this week; reducing their policy rate by 0.25% to 1.50%.
In other data, Purchasing Manager Index (PMI)’s (a measure of financial activity) were mixed for Europe, but strong for the US and UK. US initial jobless claims were once again strong, with 210,000 filing for unemployment benefits last week, lower than expected and again showing the continued tightness in the US labour market. Lastly, UK retail sales performed better than expected, providing another boost in a positive week for UK macro-economic data.