Welcome to the latest Astute Market Overview.

Last week particularly was a big week for central bank meetings, and all in all we are edging closer to interest rate cuts in the west, consequently, the period since our last overview has seen strong performance from many key markets.

Starting with the US, the Federal Reserve (Fed) made no changes to their federal funds rate when they met (this is the key interest rate in the US). This, in itself, wasn’t a surprise, but the release of the latest dot plot was a revelation to markets, causing many key investment indices to receive a boost.

The dot plot is a scatter chart released by the Fed which reveals their estimates for the Federal Funds Rate. Monetary policy decision makers in the US each assign a dot to the midpoint of where they believe rates will be over certain time horizons. The dot plot is designed to give the markets an insight into the committee’s thoughts, akin to preheating the oven before putting in the cake – you could put it in cold, but the result might not be as you intended. The Fed’s dot plot shows that they expect 0.75% of rate cuts before the end of the year, despite recent data being slightly stubborn, for example 3.2% CPI inflation which we discussed in our last overview. Whilst the slight uptick in inflation could be seen as a bump, the chair of the Fed, Jay Powell, made it clear that it wasn’t a worry, and that inflation is on a “bumpy” road downwards.

In the UK, inflation came in at 3.4% for February, a good step down from 4.0% in January, and below consensus forecasts. The following day was the Bank of England’s turn to make an interest rate decision. It came as no surprise that the central bank decided to keep interest rates on hold at 5.25% – we expect that we will see the base rate begin to decrease later this year. However, the vote split was interesting. Each of the 9 committee members gets a vote, and this time around 8 members voted for the base rate to remain at 5.25%, with 1 member voting for a cut to 5.00%. Fundamentally, no members voted for an increase, which is the first time since June last year!

And finally, let’s turn to Japan, a country with a different predicament. We touched on the region in our last overview. To recap, for the whole of this century, Japan’s economy has struggled with price and wage stagnation. However, the economy is beginning to shift. With inflation maintaining a rate of around 2%, the central bank increased their interest rate last week for the first time since 2007! The rate moved from negative territory to a range of 0-0.1%, providing a boost to Japanese equities (or stocks and shares).

As mentioned at the top of the piece, it has been a strong period for many key markets. It may initially sound counterintuitive that edging closer to interest rate cuts in one region causing markets to increase, and interest rate increases in another region also causes markets to increase. The reality is that all three regions mentioned here are moving closer to stable inflation, which gives markets the reassurance they need to begin to focus on the fundamentals of company performance.

Coming up, it will be a shortened period for markets, as many will be closed for a long Easter Weekend.

Happy Easter, see you next time!