Inflation targeting is dead, or so we are told with increasing frequency nowadays. Invented in the 1990s and widely propagated in the 2000s, targets for consumer price inflation failed to prevent the asset price bubble prior to 2008, or the subsequent financial collapse. Many investors now believe that inflation targets have been abandoned in all but name.

There is, however, a major problem with this line of argument. It does not tally with what the major central banks say they are actually trying to do, either in public or in private. Far from disappearing, inflation targets continue to gain prominence. Furthermore, they still play an essential role in ensuring good economic performance.

As recently as January 2012, the Federal Reserve formalised a 2 per cent inflation objective, while the Bank of Japan did the same for the first time only last month. The ECB continues to face heavy criticism because it pays such close attention to keeping inflation “below but close to” 2 per cent. Only the Bank of England can be seriously accused of downgrading its inflation objective in recent years, and even that may have changed in the past couple of MPC meetings. Read more

Global activity data have softened recently, especially in the US, which had previously been the one obviously bright spot in a generally bleak landscape. The US employment report for March was weak across the board, and the latest batch of business surveys suggests that the strong momentum which was apparent in the early part of the year has dissipated. Meanwhile, although China is expanding again, the eurozone has failed to maintain the signs of stabilisation which were visible earlier in the year. Even the German economy seems to be stalling, which could prove pivotal.

The American stockmarket not yet paid much attention to the weaker data, though global equities are actually no higher than the levels reached at the end of January. The next major leg up in equities may need to wait until it becomes clear whether the world economy is simply suffering from another of the mid year weak patches which have characterised the past 3 years, or is suffering from something more serious this time. Read more

The main elements in the resolution of the Cyprus crisis have clarified this weekend. Although there are many specifics still be be settled, it appears that large depositors in the Bank of Cyprus are likely to lose 40-60 per cent of their original worth, while those in the Laiki Bank will probably lose almost all of their money.

Most observers agree that this second attempt at a resolution is highly preferable to the first, largely because it avoids imposing losses on small scale deposit holders (under E100,000, which are intended to be “insured” under the eurozone’s future bank insurance regimes). However, the brutal losses imposed on large depositors this weekend will come as a shock. And all those with money in Cyprus now face severely impaired liquidity because of draconian capital controls. Read more

Exactly four years ago, amid almost universal pessimism, global equities embarked on a massive bull market which remains intact to this day. US equities have been flirting with all-time highs and many other global markets are near to their 2000 and 2007 peaks. Investors are naturally very focused on whether equities, having failed twice before to break above current levels, can finally overcome vertigo and sustain a bull run into unprecedented territory. After all, it is now 13 years since US equities first touched these levels, and US corporate profits have approximately doubled since then.

The market mood is optimistic. For example, Andrew Parlin of Kotell Advisors, a man who exactly called the bottom four years ago, remains bullish in this recent article. But sceptics argue that the rise in equities is just another example of the successive financial market bubbles which have been created in the past two decades. As each bubble has burst, the central banks have set about creating another, larger bubble, the latest of which, sceptics claim, is based entirely on quantitative easing, and not on the fundamental soundness of the underlying economy.

If this proves to be the case, then equities could be tracing out a massive triple top formation, which will ultimately be followed by a major crash. Which is it to be: a move into uncharted territory, or a triple top? Read more