FOMC rate cut expected, with dot plot in focus

The FTSE 100 leads the way higher this morning, with UK-listed stocks enjoying a strong start in an otherwise mixed European session. Notably, this comes off the back of a UK inflation report that brought a welcome decline in UK core CPI, falling to 3.6% off the back of lower transport and housing costs. Coming ahead of tomorrow’s UK rate decision from the Bank of England, any hopes of a rate cut should be tempered with price pressures still running hot compared with the 2% target. Nonetheless, the 0.3% monthly CPI figure does mean that UK inflation has been running at an annualised rate of around 2.5% for the past four-months. The 1.2% April figure continues to massively skew the overall annual figure. As such, while we are unlikely to see a rate cut this week, a continuation of the current inflation trajectory does mean we could see significant easing next year.

The Chinese tech boom continues apace, with the Hang Seng rising 1.8% as global capital flows into big-tech names. A 5% bump in Alibaba shares have provided shareholders with a healthy 36% return in the last month alone. The ongoing question marks around valuations in the US AI space mean that investors are looking further afield, with Chinese stocks clearly finding themselves in a sweet spot. The news that Alibaba has struck a major deal to supply AI chips to state-owned telecom giant China Unicom highlights the potential benefits for those dominating a market that will undoubtedly see huge investment over the coming years. The billions pouring into AI initiatives across China’s tech landscape reflects a renewed strategic focus on artificial intelligence, from cloud-based applications to robotics. Meanwhile, an Alibaba-led $100 million investment in Shenzhen-based X Square Robot highlights the drive toward next-gen humanoid technology with global ambitions. For Alibaba enthusiasts, Jack Ma’s promise to “make Alibaba great again” will provide yet another reason to believe the company will be in growth mode after a period of stringent government oversight and intervention.

Today sees the FOMC likely embark upon their first rate cut of the year, with Donald Trump finally getting his way despite failing to remove Powell and Cook in the process. Inflation fears do remain prevalent, with headline CPI rising 0.4% last month. However, Trump’s most influential actions have been the policy adjustments that have led to the deterioration in the jobs market, with declining payrolls, rising jobless claims, and falling job openings highlighting an economy in need of central bank support. However, many questions remain beyond whether the Fed will cut rates today. What is the range of opinions that went into that decision? With Stephen Miran joining the Fed, we could easily see both votes for a 50bp cut and a pause. Meanwhile, the release of economic projections mean that we are afforded an insight into the rate path for the year ahead in the form of the dot plot.