BoE remain steadfast, with stocks lifted by dovish stance

Unlike the Fed, the Bank of England remains confident that the recent rise in inflation will be fleeting in nature. That dovish stance has helped to drive market higher, following a week dominated by uncertainty. Meanwhile, a disappointing showing for US jobless claims and core durable goods actually helped ease fears over a hawkish Fed. 

• Dovish BoE helps to lift the Fed cloud 
• Recent rise in inflation not a concern for now 
• Jobless claims and core durable goods disappoint 

Markets throughout Europe and the US are enjoying one of the more memorable days in a week that has largely been dominated by indecision and uncertainty. The Bank of England has been one of the main determinants of that positive outlook, with the MPC allaying fears that the recent hawkish shift from the Fed is the first in a wave of many such moves. Instead, the Bank of England managed to hold their dovish stance in a more convincing manner, with the outgoing Haldane once again representing the only member to vote for a reduction in the asset purchase programme. While today’s meeting saw upgrades to growth and inflation projections, there is a feeling that this recent surge in CPI will be temporary in nature. Despite UK inflation rising above the 2% target, it seems the Bank of England members remain steadfast in their position that policy should remain accommodative for now. That dovish stance helped to boost the FTSE 100 in two ways, with the prospect of loose monetary policy lifting stocks and driving the pound lower.  

Economic data out of the US has highlighted the lumpy nature of this recovery, with both jobless claims and durable goods orders falling short of expectations. While we had hoped to see proof that last week’s unemployment claims rise was a one-off, we instead saw the rate flat-line with an upward revision to the prior week’s figure. One positive came in the form of the continuing jobless claims figure, with the larger-than-expected decline signalling that there is room for optimism over the jobs market trajectory despite the recent rise in new claims. Despite disappointing initial jobless claims and core durable goods figures, markets are clearly treating bad news as good news given the impact it could have in delaying any monetary tightening.