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Stock Trends 

Stocks were broadly lower in early trade on Thursday and the pace of selling picked up as the first half hour went on, with the FTSE 100 down over one percent to below 7,500 and the DAX falling over one percent to test the 15,800 area. It follows another reversal on Wall Street as Jay Powell signalled the Fed is committed to further rate hikes, with the three major US indices slipping for a third straight day. Powell didn’t really tell us anything new about the Fed’s thinking – it is in data-dependent mode and unless there are some horrid jobs numbers it will hike in July.  

  

Bank of England's Decision 

The Bank of England has to do something today – but it will still lean on the lagged effects of the hikes already in the can. It could go big with a 50bps move, but that would be out of character. A couple more hikes from here and we are into recession territory, and the BoE has consistently sought to rein in market pricing…to little effect. Markets were quick to price in 6% terminal rate after the CPI print was above forecast, but that does not mean we get to that level. It was not so long ago we were talking about the BoE being close to the finish line – a couple of hot CPI prints over the summer are a fly in the ointment but the Bank has never been one to overreact. Maybe it changes its spots today? Maybe. 

  

Market Pressure and Bank’s Response 

The question for the Bank remains this – does it lean into the market’s aggressive pricing or push back? It would be reasonable to assume the latter given the Bank’s track record, but it is coming under intense scrutiny like never before. It’s never good for MPs to be murmuring and Powell had a nice line about inflation being something ordinary people shouldn’t need to be thinking about. Well right now everyone is thinking about it. If the BoE accepts that we are into wage price spiral territory, then there is only really one option left: create a recession. It’s not going to be difficult to engineer one from here. Maybe then we can stop talking about the BoE and inflation and look to rate cuts. 

  

Possible Outcomes 

There are three likely outcomes from today: one is a super-hawkish 50bps hike (less likely), two is a 25bps hike with lots of hawkish language and the third is a dovish 25bps hike – pushing back against the market pricing. I think they still lean on the lagged effects of hikes already done whilst simultaneously signalling concern about recent inflation prints; so somewhere between option 2 and 3. Members are likely split over hikes – remember two MPC voters have been against recent hikes.   

  

Global Market Highlights 

Elsewhere, weekly unemployment claims figures from the US will be released – comes after two straight weeks above 260k. Fed chair Powell continues his testimony in Congress and existing home sales data is up. Swiss National Bank raised rates by 25bps as expected. Ocado shares leapt 14% on bid rumours…who pays £4-5bn for the tech? 

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