Closing summary
Wall Street stocks have pared gains, and the Nasdaq has turned negative.
The S&P 500 is now up just 0.1% while the Dow Jones is 0.4% ahead, and the Nasdaq slipped by 0.1%.
In Europe, stocks are holding onto their gains, with the FTSE 100 index in London up 1.2%, or 115 points, at 10.083. The German, French, Italian and Spanish indices have climbed between 0.4% and 0.6%.
Brent crude, the global oil benchmark, has gained 2.5% to $115.38 a barrel, and touched $116.89 a barrel earlier today. It is on track for its biggest monthly increase on record following the US-Israeli attack on Iran on 28 February which triggered a wider Middle East conflict.
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Thank you for reading. We’ll be back tomorrow. Bye! – JK
There is much speculation about how the Bank England will react to the spillover effects from the Middle East conflict.
High inflation will need to be tackled by higher interest rates, say international investors.
This sentiment has supported betting by financial markets, which agree that Threadneedle Street policymakers will vote for at least two increases in the cost of borrowing this year and possibly a third, pushing interest rates from 3.75% to 4.5%. The first move could be as early as next month.
Many economists say a rise in the consumer prices index (CPI) from 3% in February to 4% or 5% is unlikely to trigger higher borrowing costs.
The basis for this claim is an unfashionable corner of the central bank’s financial data output.
Paul Dales, the chief UK economist at the consultantcy Capital Economics, says he has been looking at the annual growth rate of the M4 money supply in today’s mortgage and credit figures.
M4 – the broadest measure of money circulating in the economy – is the defining signal that inflationary pressures are gaining a head of steam. That’s according to monetarist economists, who were popular in the early 1980s.
Margaret Thatcher’s favourite economists were monetarists. And there are still devotees who argue that it provides a clear signal – when M4 is growing quickly – that too much money is chasing too few goods and services, leading to high inflation.
M4 rose from 3.6% in January to 3.9% in February. But as Dales says, that’s a long way from the peak of 15.2% in February 2021, which he says contributed to the most persistent inflation problem of recent years.
Indeed, although the relationship is not tight, the current rate points to CPI inflation being around 2-3% in 18 months’ time.
What’s more, the tightening in financial conditions since the Iran War began at the end of February suggests that credit won’t be flowing freely through the economy in the coming months, or if it is, it will certainly be more expensive.
His conclusion? A reluctance by banks and other lenders to expand credit (and consumers to demand it) will restrain some of the inflationary effects from the Iran war “and may mean the Bank of England won’t need to raise interest rates from 3.75%,” Dales says.
Or at the least won’t need to raise them to the 4.50% that is almost fully priced into the financial markets.
