The latest figures indicate that UK inflation has been comparatively stable. It has held a 2.5% annualised rate for the last four months. The Bank of England is preparing to make an equally momentous rate decision in the early hours of tomorrow. On one hand, the new 0.3% Consumer Price Index (CPI) figure for the month seems to confirm this trend. Analysts are warning against creating hopes for a cut. Persistent price pressures are strong and above the central bank’s 2% inflation objective.
The increase in core CPI over the last year to 3.6% can primarily be attributed to rising transportation and housing costs. This new paradigm has triggered a new debate among economists about how much monetary policy should be changed. The Bank of England’s upcoming decision will be closely monitored, particularly as it considers these inflationary trends against a backdrop of economic uncertainty.
The FTSE 100 has not performed so well in the financial markets. This increase is being driven by the assumption that UK inflation is still under control. UK-listed stocks are continuing to have a powerful start against a mixed performance from the rest of Europe. This palpable optimism reflects an optimistic investor sentiment, even in this ripple inflationary period.
On that bigger stage, advancements in international markets are having an effect on investor sentiment. In Asia, shares of Chinese e-commerce giant Alibaba (BABA) have risen over 5% today, and a staggering 36% return over the last month. This overall upward trend is indicative of a larger trend where capital is continuing to flow into the big tech firms. On the other hand, the Hang Seng Index has increased by 1.8% on the back of a global appetite for big-tech investments.
Alibaba’s pledge to innovation runs deep. As part of this strategy, just last month the company injected $100 million into Shenzhen-based X Square Robot to develop next-generation humanoid technology. This political play aligns with co-founder Jack Ma’s long-term dream to “make Alibaba great again.” It’s a sign of a growing, recalibrated emphasis on growth and setting the terms of technological leadership.
At the same time, across the pond, uncertainty about the direction of Federal Reserve monetary policy has, if possible, only increased. Economists expect the Fed to announce its first rate cut of the year at its next meeting. Former President Donald Trump has been the most vocal proponent of this transfer. He has apparently failed to replace game changers such as Jerome Powell and Lael Brainard from their posts. The next release of economic projections will provide critical clues as to the Fed’s rate direction for the remainder of the year. Don’t miss the dot plot analysis, which will be especially revealing.
Yet fears over inflation are not confined to the UK and US markets. The latest headline CPI figures indicate a 0.4% increase last month, underscoring persistent inflation fears among investors and policymakers alike. As always, the dance between inflation numbers and central bank reaction will be the most important variable in determining the course of market.