Central banks surprise traders more than economists
The Bank of England and the Bank of Japan left policy unchanged, but in very different ways. The Bank of Japan did nothing with an ease born of a great deal of practice at doing nothing. The Bank of England had three dissenters favoring policy tightening, with inflation pressures cited as the cause.
The Bank of England surprise follows a somewhat more aggressive tone from the US Federal Reserve. Markets seem to forget that central banks are run by economists, not traders. There is a focus on trends and the medium term, rather than a panic over single data points.
Euro area consumer price inflation is due – a good example of a single data point that should not sway policy. Now that the big move in inflation is over, inflation noise is generated by local factors. US Michigan consumer sentiment is due, and France has second round national assembly elections this weekend.
US Congressional Republicans have warned the president not to threaten the special counsel. There are reports that the investigation into the Russian question is widening. The issue remains the same for investors – Congressional time and administration time is occupied with the investigation, not with legislation.