Fresh high for global stocks as markets await ECB rate cut​

​​​Investors await ECB decision

​All eyes turn to Frankfurt as financial markets await the latest European Central Bank (ECB) decision.

​The bank is expected to cut rates by 25 basis points, continuing its easing theme, but the big question will be around how it views the next few months as the impact of tariffs becomes clearer. Central banks expect growth to slow in coming quarters, but the problem is that inflation may rise first. This dreaded ‘stagflation’ scenario is the one feared most by investors, and could easily morph into a recession.

​Stock rally shows no sign of slowing 

​The All Country World Index touched a new record high yesterday, exceeding the one seen in February. This is a remarkable recovery for global equity markets, and seems dramatically disconnected from the worsening situation for the global economy.

​Data so far this week has not been encouraging. The Chinese purchasing managers indices (PMIs) at the weekend were mixed, while both US ISM PMI figures were weaker than forecast. The services PMI dropped into contraction territory, something that has occurred frequently before a recession.  

​Markets seem prepared to look past this for the time being, which might appear odd. There is still the risk of renewed volatility as the data picture becomes clearer, but investors still think that the US administration’s tariff policy is now essentially driven by the need to make deals.  

Given this view, and the likelihood that the US budget will involve tax cuts designed to stimulate the economy, it seems more logical to expect a continued, if choppy, rally in equity markets. The litmus test may well be the next earnings season, which begins in the second week of July.