Stock markets were mixed early on Friday, though it’s been a positive week. The FTSE 100 continues to rally, now breaking up above 7,930 to test the Apr 2023 swing highs. The Dax was steady, whilst the Cac dropped a bit. US stock markets rallied again on Thursday with the S&P 500 up almost 2.5 per cent for the week, clearing all-time highs above 5,200. There were some big moves yesterday in individual stocks – Micron Technology jumped 14 per cent on earnings, Reddit rose 48 per cent on debut and Apple slipped 4 per cent after the DoJ filed an antitrust lawsuit against the company.
There is a definite sense that central banks are prepared to tolerate higher inflation and are ready to cut – or already have. Indeed, why shouldn’t they? Suppressing yields and pushing up inflation has been their stated aim for well over a decade. Now they have it and want to keep it – hiking interest rates into the oblivion of unemployment and recession was never the plan. Moreover, higher inflation and suppressed yields are positive for the debt burden. It’s just not so positive for the rest of us who work hard and expect our money to be ‘sound’ and our policymakers to be responsible with our money.
Unless, of course, you own stocks. Markets have roared higher after the Federal Reserve signalled it’s not worried about sticky core inflation and still plans to cut three times this year. Even this, it should be noted, represents far fewer cuts than the market had anticipated at the start of the year. Its ability to digest such a change in rates futures is indicative of the bullishness, and the fact that an awful lot of money has been printed and will be printed. Central banks are keen to top up the punchbowl; if the last mile on inflation is so hard, why tire yourself out needlessly?
Meanwhile, the dollar rallied with DXY above 104 as pressure came on other currencies in the wake of the SNB’s decision to cut and the quite dovish mood at the Bank of England. The SNB started the countdown for the ECB, so even Fed dovishness is not a barrier for the dollar.
The Trader is written by Neil Wilson, chief market analyst at Finalto
