9th May 2023
Perspective News, The Cambridge Weekly
The Cambridge Weekly – 9th May 2023
A small predicament
Last week’s investor focus was dominated by May’s central bank rate decisions, with the weaker spots in US (regional bank) markets continuing to rumble just beneath the surface. Australia’s Reserve Bank made the start on Tuesday, surprising most commentators by raising its cash target policy rate again, up 0.25% to 3.85%. It had been expected to hold steady. This proved the only surprise policy move; both the US and Eurozone central banks also raised rates by 0.25% to 5.25% and 3.25% respectively but this was in line with expectations. In the UK, we await the Bank of England (BoE) decision this week, with its Monetary Policy Committee (MPC) also expected to raise rates by 0.25% to bring the UK’s base rate to 4.5%
April review – deceivingly calm
April was a mild month in capital markets. While most developed world equity indices gained in sterling terms, the rises were very slight. When including emerging markets via the MSCI All-Country World index, it was very close to flat at -0.2%. Middling is not such a bad thing though, especially considering some of the positive returns in previous months. April’s sideways trading effectively meant global equity investors held on to gains from earlier in the year, with global stocks gaining 5% year-to-date (YTD) in sterling terms. Particular YTD standouts were the NASDAQ Composite, climbing 12.1%, and Europe ex-UK rising 11.2%. The table below shows April returns for UK-based investors across key regions and asset classes.
Central banks slowing, but not pivoting
A raft of vitally important central bank meetings took place last week. The Fed met on Wednesday, followed by the European Central Bank (ECB) on Thursday, and the Bank of England (BoE) will meet on Thursday 11th May. The world’s monetary policymakers are trying to solve the twin afflictions of slowing (or in some cases, negative) growth and stubbornly high inflation. As expected, all three raised interest rates again – a sign – if anyone needed it – that the inflation fight is not yet over. For capital markets, though, more
important are the signals for the future of monetary policies. The perception that policymakers might loosen their grip has been one of the biggest factors underlying market positivity this year. Central bank watch is therefore important as ever.