Daniela Hathorn

Magnifying glass focused on the word inflation on UK flag background - source: shuttershock

Financial Great Britain flag, united kingdom economy and european union flag Photo: Octus_Photography / Shutterstock

The Federal Reserve is expected to keep rates unchanged at its meeting on Wednesday. Data from Reuters shows a 98% chance of no changes to the current range of 5.25% - 5.50% despite data released on Friday showing the core PCE index – the Fed’s preferred measure of inflation as it measures the change in prices of what consumers buy – dropped to 2.9%. This was the lowest level since March 2021. Meanwhile, the CPI – which measures the price change of a basket of goods in the marketplace – rose marginally to 3.4% in December, highlighting how the disinflation process becomes trickier the closer it gets to the 2% target.

The Bank of England is expected to keep rates unchanged at its meeting on Thursday, 01 Februaryt. Data provided by Reuters shows a 97% chance of keeping rates at the current level of 5.25%. Until now, the central bank has had a firm stance against discussing any rate cuts, but anticipation is high heading into the first meeting of the year as pressure mounts to disclose further details about the future of monetary policy.

While the Magnificent Seven have dominated market momentum in recent months, it’s not true that they are the sole drivers of the recent rally in equity markets. Whilst the big tech stocks have indeed driven the S&P 500 and Nasdaq 100 to new all-time highs, the equally weighted S&P 500 proves that the bullish momentum is still carried throughout the broader market. In fact, despite taking a little longer, the equally weighted index has also reached new highs in the past few days.

UK banks will be in the spotlight in the week ahead as the European earnings season continues. A key metric to look out for when analysing bank earnings is interest income. This is the difference in the rates it charges for loans versus what it pays on deposits. During 2023 we saw interest rates rise significantly across developed economies which has allowed the interest margin to increase. However, should rates drop lower at some point this year, could revenues generated from interests drop in tandem?

After months of speculation, traders turn their attention to the central banks to try and figure out which will be the first one to cut. Before the year started, many thought all the major banks would have started cutting by now, or at least suggested that the first rate cut would come in March. Futures markets were pricing in up to 150 basis points of cuts from the Federal Reserve, the European Central Bank and the Bank of England in 2024 – but soon they realised that was too optimistic. Current pricing stands at around 80bps of cuts, but that is likely to continue dropping for some of them.

All price information and forecast data in this article is sourced from Reuters

The bullish momentum in oil prices remains strong as escalating geopolitical tensions raise concerns about supply.

The price information and economic data in this article are sourced from Investing.com, and Reuters.