Introduction: BoE and ECB setting interest rates
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
One down, two to go. It’s the Bank of England and the European Central Bank’s turn to set interest rates today, a day after the US Federal Reserve cheered investors with a clear signal it will cut rates next year.
Like the Fed, both the BoE and the ECB are very likely to leave interest rates on hold today.
But (also like the Fed) the focus will be on how quickly Europe’s major central banks will cut borrowing costs next year.
The money markets are indicating that ‘no change’ from the BoE at noon today is a 94% near-certainty, which would leave rates at a 15-year high of 5.25%
After all, UK inflation is more than double the Bank’s 2% target (at 4.6% in October). And after wage growth slowed in the last quarter, the Monetary Policy Committee will want to see more signs of easing price pressures.
But looking into 2024, the markets now expect UK rates to be cut by a full percentage point by the end of next December, to 4.25%. Yesterday’s news that the UK economy shrank in October has raised fears that Britain could be sliding into a recession
For the European Central Bank, the inflationary picture a litte more pleasing – consumer prices in the eurozone only rose by 2.4% in the year to November.
The ECB is expected to leave its deposit rate unchanged at 4.0%, while its inflation expectations could be revised down in the latest macro forecasts drawn up by its staff.
Last night, the Dow Jones industrial average closed at a record high, as traders cheered the news that most Fed policymakers expect US interest rates to be cut three times in 2024.
This has bolstered hopes that the US can avoid a recession, as Jim Reid, strategist at Deutsche Bank, explains:
Yesterday’s FOMC meeting did its best to give investors an early Christmas present, all packaged with a bow and extra special gift wrapping. In turn this added more fuel to the soft landing narrative.
European markets are set to rally today too, with the FTSE 100 index forecast to rise almost 1%.
In a busy day for central banks, Switzerland and Norway are also setting rates today.
The agenda
-
8.30am GMT: Swiss National Bank interest rate decision
-
9am GMT: Central Bank of Norway (Norges Bank) interest rate decision
-
12pm GMT: Bank of England interest rate decision
-
1.15pm GMT: European Central Bank interest rate decision
-
1.30pm GMT: US retail sales for November
-
1.30pm GMT: US weekly jobless claims
-
1.45pm GMT: European Central Bank press conference
Key events
FTSE 100 hits two-month high
London’s stock market is rallying hard at the start of trading, as investor cheer last night’s dovish words from the Federal Reserve.
The FTSE 100 index of blue-chip shares has jumped by 136 points, or 1.8%, to 7686 points, the highest level in two months.
Grocery technology firm Ocado are the top riser, up 7.6%, with mining companies also in the top risers, reflecting hopes that interest rates will be cut aggressively next year.
Investors are also predicting a flurry of US interest rate cuts next year:
US rates are now expected to fall by 1.5 percentage points in 2024 – or six quarter-point cuts….
*TRADERS PRICE 150BPS OF FED RATE CUTS IN 2024 FOR FIRST TIME
— IGSquawk (@IGSquawk) December 14, 2023
…., which is twice as much as the Fed policymakers predicted in the forecasts released yesterday.
Latest Fed dot plot. 0.75% of interest rate cuts seen in 2024 median. Three observations: 1) A coherent set of projections – with higher downside growth risks & recent soft price data providing an easing path; 2) Stubborn refusal to shift long term estimate for Fed Funds Rate… pic.twitter.com/QOLScaLiLu
— Simon French (@shjfrench) December 14, 2023
Markets expecting five BoE rate cuts in 2024
Newsflash: Investors are expecting the Bank of England to cut interest rates more aggressively next year.
The money markets are now indicating that UK interest rates will have fallen to 4% by the end of 2024. That implies five quarter-point cuts next year, rather than the four expected yesterday.
There’s already been central bank action in the Philippines, but it wasn’t really an interest rate thriller in Manila.
The Philippine central bank left its benchmark interest rate unchanged at 6.5% for the second meeting in a row.
Bangko Sentral ng Pilipinas governor Eli Remolona told a press conference the central bank deemed it necessary to keep monetary policy settings tight but was ready to adjust that if necessary.
ING’s Nicholas Mapa explains:
Remolona indicated that they would be monitoring the response of households and firms to tighter monetary policy, suggesting they would be waiting to see the impact of previous rate hikes on the inflation path. The central bank will likely extend its pause until inflation is “well-within” target and until inflation expectations are anchored.
We expect the BSP to be on hold well into 2024, with potential rate cuts only likely to be considered towards the end of next year.
Introduction: BoE and ECB setting interest rates
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
One down, two to go. It’s the Bank of England and the European Central Bank’s turn to set interest rates today, a day after the US Federal Reserve cheered investors with a clear signal it will cut rates next year.
Like the Fed, both the BoE and the ECB are very likely to leave interest rates on hold today.
But (also like the Fed) the focus will be on how quickly Europe’s major central banks will cut borrowing costs next year.
The money markets are indicating that ‘no change’ from the BoE at noon today is a 94% near-certainty, which would leave rates at a 15-year high of 5.25%
After all, UK inflation is more than double the Bank’s 2% target (at 4.6% in October). And after wage growth slowed in the last quarter, the Monetary Policy Committee will want to see more signs of easing price pressures.
But looking into 2024, the markets now expect UK rates to be cut by a full percentage point by the end of next December, to 4.25%. Yesterday’s news that the UK economy shrank in October has raised fears that Britain could be sliding into a recession
For the European Central Bank, the inflationary picture a litte more pleasing – consumer prices in the eurozone only rose by 2.4% in the year to November.
The ECB is expected to leave its deposit rate unchanged at 4.0%, while its inflation expectations could be revised down in the latest macro forecasts drawn up by its staff.
Last night, the Dow Jones industrial average closed at a record high, as traders cheered the news that most Fed policymakers expect US interest rates to be cut three times in 2024.
This has bolstered hopes that the US can avoid a recession, as Jim Reid, strategist at Deutsche Bank, explains:
Yesterday’s FOMC meeting did its best to give investors an early Christmas present, all packaged with a bow and extra special gift wrapping. In turn this added more fuel to the soft landing narrative.
European markets are set to rally today too, with the FTSE 100 index forecast to rise almost 1%.
In a busy day for central banks, Switzerland and Norway are also setting rates today.
The agenda
-
8.30am GMT: Swiss National Bank interest rate decision
-
9am GMT: Central Bank of Norway (Norges Bank) interest rate decision
-
12pm GMT: Bank of England interest rate decision
-
1.15pm GMT: European Central Bank interest rate decision
-
1.30pm GMT: US retail sales for November
-
1.30pm GMT: US weekly jobless claims
-
1.45pm GMT: European Central Bank press conference
