Headline inflation in the United States exceeded expectations slightly, registering at 3.4%, thereby diminishing the likelihood of an early interest rate reduction by the Federal Reserve and driving yields upwards.

Market sentiment hinges significantly on the outlook for interest rate differentials, with ongoing speculation regarding the timing and extent of potential rate cuts continuing to propel market momentum.

Currently, the Bank of England is priced at a 75% probability of implementing a 0.25% rate cut in June. However, market forecasts of a total 1.25% reduction throughout the year may appear overly aggressive, given the persistent elevation of inflation and wage increases. The Bank remains committed to a 'higher for longer' stance and is likely to exercise caution in implementing early cuts.

The U.S. central bank is anticipated to lead the way in initiating a cycle of rate cuts, possibly as early as March, with forecasts projecting up to 1.40% in cuts for the year. After a significant decline in inflation throughout 2023, the focus has shifted towards supporting the economy and achieving a 'soft landing.'

Amidst the weakest economic fundamentals and a bleak growth outlook for the Eurozone, the European Central Bank may find itself compelled to be the most assertive in implementing rate cuts.

Persisting geopolitical tensions, particularly the risk of the Middle East conflict spreading, continue to be a genuine concern at the forefront of investors' minds.

The start of the year on exchanges has been cautious, marked by unprecedented uncertainty leading to a lack of clear conviction. The upcoming release of key UK data next week is expected to heighten volatility in the markets.