Last week, investors were given a reminder that stocks can go down as well as up, as the disclaimer says, but also what goes up, i.e. central bank interest rates, doesn’t necessarily come down as quickly as they might like.

The European Central Bank’s rate-setting meeting was a case in point – despite a clearly-weakening economic backdrop, the bank held rates steady but as Ann-Katrin Petersen of the BlackRock Investment Institute commented ‘it is on hold not autopilot’, with President Lagarde saying a September cut is ‘wide open’.

Like the Federal Reserve and the Bank of England, the ECB is following a ‘data-dependent, meeting-by-meeting approach’ and wants more evidence inflation will hit its 2% target by the end of 2025, starting with slowing wage growth.

Expectations for a UK rate cut had come forward to next month, and last week’s June retail sales disappointment suggests cuts are needed soon, but there are concerns some of the legislation outlined in the King’s speech such as the new Employment Rights Bill could lead to a resurgence of wage inflation, forcing the Bank of England to stay its hand.

As Shares went to press, markets were awaiting the services PMI (purchasing managers’ index) reports in the US and the UK in the hope they remain in ‘Goldilocks’ territory in the low 50s – still signalling a modest economic expansion but neither too hot nor too cold.

Also on investors’ radar will be US second-quarter GDP, which is expected to show a small acceleration to 2% against 1.4% in the first quarter, and June PCE (personal consumption expenditure) prices which the Federal Reserve will also no doubt scrutinise for evidence inflation is on track to meet its target.

Then it is all eyes on rates with the Fed and the Bank of England meeting on consecutive days next week, although the odds of a cut from either look slim from where we stand. 

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