Inflation may be more of a problem next year, but for now the bulls seem to be still in control
It was a week where central banks were front and center in traders’ minds. First off was the US Federal Reserve, announcing that it was going to start scaling back its stimulus program - an announcement that did not come as too much of a surprise for markets. What was telling was its change in language when describing inflation. The Fed now thinks that inflation is “expected to be transitory” - a slightly vaguer view than it was espousing earlier in the year when banks were all singing from the same hymn sheet and expressing little concern about the rising cost of living. Whether it needs to delve into its thesaurus again in the future and alter its description remains to be seen - but don’t be surprised if inflation ends up being more of a problem next year than many thought at the beginning of this one.
The Bank of England did deliver a surprise - by doing nothing. There seemed to be some wider agreement in the market that November would be the month when the UK’s central bank finally notched its base rate up - but that did not happen. To see how this wrong-footed the market you only need to look at the price of sterling. The pound lost around 1.5 cents against the US dollar over the next few hours as traders had to revise their expectations - and immediately start speculating on a possible rate rise in December. Stock markets welcomed the lack of action though with the broader FTSE250 index getting a lift on news that borrowing costs weren't going to be changed this month at least. And of course keeping rates low encourages investors to stick with stocks as it is still not attractive to have cash lying around - particularly as inflation creeps up.
In individual stock news, Facebook (NASDAQ:FB) stock changed its name to the somewhat less-catchy Meta Platforms. Market reaction was probably the financial equivalent of a collective sigh, with the stock just moving as per normal. Tesla (NASDAQ:TSLA) of course set fresh all-time highs once more - its stock was up a staggering 60% since the end of September. As with the broader stock market indices such as the NASDAQ and S&P 500, which also set fresh highs, many have tried to call the top in all of these but as the week draws to a close, the bulls for now seem to be still in control.