Lei Wei’s view on the future of European and global markets
After the Federal Reserve’s long-awaited rate cut , the next interest rate decision will depend on the Bank of England (BOE), although Thursday’s results may not matter much.
As the Fed emphasized in its statement, the Bank of England did not declare “greater confidence” that domestic inflation is under control. Not at all, because British service industry inflation rose 5.6% annually .
This confirms that the final outcome will be stable , with interest rates likely to remain unchanged at 5.0%.
If anything, BOE policymakers are likely to reiterate their “cautious” stance against providing relief too quickly or too soon.
However, European Stoxx 50 futures and FTSE futures rose as the Federal Reserve’s sharp interest rate cut lifted sentiment in Asian stock markets, and stock futures forecast a good start for Europe.
However, the currency market’s reaction was a classic case of “buy the rumour, sell the fact”.
The US dollar has regained its losses against most currencies, at one point rising more than 1% against the yen.
The focus on Thursday may no longer be on the Bank of England’s interest rate decision, but on its target next year for reducing the UK’s gilt balance sheet , which has swollen during the pandemic. It is widely expected to target a reduction of 100 billion pounds ($132 billion) over the next 12 months.
This could be a potential boon for bond markets, as reiterating the target would mean a 75% reduction in active gilt selling as large amounts of maturing debt are automatically written off.
Another focus on Thursday was the broad drop in Chinese bond yields, amid expectations that now that the Federal Reserve is insolvent, Beijing may soon announce more policy easing to support its struggling economy.
Stocks in Hong Kong and mainland China also reversed early declines and gained on expectations of further stimulus.
Key developments that will impact the markets on Thursday:
– Bank of England interest rate decision
– Weekly US Unemployment Claims
