ECB’s Lagard makes rate cut history
Rate cuts at last. In a heavily anticipated decision, the European Central Bank (ECB) cut interest rates for the first time in five years last Thursday. Perhaps more poignantly, it was the very first time in its 25 years existence that the ECB cut before the US Fed. European stocks rallied in the build up, and got another boost following the decision and accompanying commentary. They were not the only ones: US equities had another strong week, with focus again on the dominant mega tech sector. Underlying the global equity rally was a sharp move down in bond yields – which make stocks more attractive by comparison, while stimulating business investment and demand. Markets are excited about easier monetary policy yet again.
May 2024 asset returns review
May was decent for global investors. Global stocks gained 2.3% in sterling terms, reversing the losses we saw in April. This also meant new all-time highs for several major stock indices, though with relatively little fanfare. Underlying the return to positive capital market returns were strong corporate earnings and fewer fears about interest rates staying higher for longer, after US inflation finally resumed its downward path. Rates will not fall as hard or as fast as hoped earlier in the year, but the path downward is practically confirmed. Perhaps more importantly, there was a sense that economic growth and profits are strong enough not to need central bank support – particularly in the US. The table below shows May’s sterling returns in full.