It was another relatively quiet week across equity markets. Global equities were static in local currency terms but in Sterling terms they achieved a modest 0.8% gain predominantly due to the pound retreating from its recent high of $1.26.
In macro terms, inflation is still very much the focus of attention, but little of note took place last week to spook the markets and the US April headline rate edged down fractionally from 5.0% to 4.9%. While headline inflation is down substantially from a high above 9%, core inflation remains a concern to the authorities and looks likely to hold back any rate cut strategy for a considerable time yet.
The Bank of England has also raised its inflation forecasts, largely on the back of continuing rises in the cost of food. A fall to 5.1% by year-end is the current projection with a target of 2% not likely to be met until early 2025. However those estimates also come with quite strong caveats of potential upside risk too. It was therefore no surprise to the markets when interest rates were raised by a further 0.25% to 4.5%. Current sentiment widely suggests a further 0.25% rise next month, which should hopefully mark the peak.
An unexpectedly heavy fall in German industrial production in March proved unwelcome and raised the spectre of recession across the Eurozone once again. Luckily the fall in gas prices back to 2021 levels has helped offset some of these headwinds but it is again considered a given that the ECB will continue on its strategy of raising rates while recession is still an ominous prospect, both in Europe and the US. In contrast the Bank of England has gone slightly less bearish, changing its stance from predicting recession to one of stagnation over the coming year. However it is abundantly clear that nobody has a crystal ball or infallible track record of accurately pinpointing how the markets will actually behave.