Stocks surge despite ECB and BoE hikes

Stocks are on the front-foot despite warnings from the ECB and BoE that we could be due another set of rate hikes. UK domestic stocks are particular outperformers, with the prospect of a lacklustre 2023 bringing a potential swift pivot from the BoE, says Joshua Mahony, senior market analyst at online trading platform IG.

Central bank warnings bring risk-on push for stocks

“European equities have received a shot in the arm today, with investors willing to overlook the prospect of additional rate hikes to focus on the theme of falling inflation and an impending end to this tightening phase. While the likes of Powell, Lagarde, and Bailey refrained from stating that this week’s rate hike is the final twist of the knife, it could yet be one and done for some. Meanwhile, growing optimism that inflation has peaked brings confidence that this year will allow for the dovish pivot theme to build a bullish financial market environment this year.  ”

FTSE 250 highlights potential benefit of lacklustre UK growth picture

“The FTSE 250 has been a major outperformer today, amid easing fears of a prolonged recession in the UK. BoE projections of an eight-quarter slowdown have been replaced by a five-quarter contraction, which is also less severe in nature. Rising interest rates and elevated prices have certainly brought significant hurdles for the UK economy to overcome. However, despite the IMF projection that the UK will be the only major economy to contract this year, that could actually help drive a swifter pivot from the BoE. While the central bankers will focus on the innate risks ahead for the economy, market price action brings clear confidence that this is the time to buy the dip ahead of the rip. ”