Major central bank outlooks are diverging [Video]

The title of yesterday’s report was: will the Bank of England (BoE) cut? And the answer is yes, it is planning to cut its rates soon. This – expected and concretized dovish shift – was the major takeaway from the BoE’s latest MPC meeting that took place yesterday.

As a result, the FTSE 100 rallied to a fresh record yesterday and Cable sold off as a kneejerk reaction to the dovish shift in the BoE’s outlook, but rebounded strongly after the weekly jobless claims data from the US came in much stronger than expected.

Elsewhere, the S&P 500 rallied yesterday and closed from a spitting distance from an ATH level because the stronger-than-expected weekly jobless claims suggested a tighter labour market and an economic slowdown that could bring the Fed to cut rates if inflation eases. And if inflation eases not, well, it is still interpreted as a good news, because then, the demand is strong enough to push prices higher. Yes, equities are winners in both cases. But there is also the stagflation scenario - where the Fed will have no option but to keep rates at higher levels for a longer period of time, praying that the inflation fever will eventually break. And that – stagflation – is the major risk to the US equity rally ahead of next week’s US inflation update.