Central Bank Inflation Fight To Carry On

  • Central banks are set to hike policy rates this week. Markets expect rate cuts to soon follow due to cooling inflation, whereas we see central banks holding tight.
  • U.S. stocks rose last week as initial earnings updates topped low expectations. We think earnings will contract in 2023’s second half as wage gains hit margins.
  • The Fed and European Central Bank will likely raise interest rates again this week. We see the Bank of Japan opting to keep policy loose to sustain inflation.

The Federal Reserve and the European Central Bank (ECB) are set to hike rates again this week, yet markets have been taking this in stride. Soft June U.S. core inflation has revived hopes for rate cuts in 2024. This can fuel a bull run across assets for some time – until it runs into the disconnect between fast-falling inflation and stronger-than-expected economic activity. We look for opportunities beyond broad asset classes, such as the artificial intelligence theme in equities.

Wage-Inflation Connection