Introduction: BoE and ECB set interest rates
Good morning and welcome to our ongoing coverage of companies, financial markets and the global economy.
Money markets suggest that there is a 94% probability of an “unchanged” decision from the BoE at midday today, which would leave interest rates at a 15-year high of 5.25%.
After all, inflation in the UK is more than double the Bank’s 2% target (4.6% in October). And with wage growth slowing in the last quarter, the Monetary Policy Committee will want to see more evidence of easing price pressures.
However, looking ahead to 2024, markets now expect UK interest rates to be cut by a full percentage point to 4.25% by the end of December next year. Yesterday’s news that the UK economy contracted in October has sparked fears that the UK could slide into recession.
For the European Central Bank, the inflation picture is a little more encouraging – consumer prices in the eurozone rose by just 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 downwards in the latest ECB staff macro forecasts.
Last night, the Dow Jones Industrial Average closed at a record high as traders cheered news that most Fed policymakers expect US interest rates to be cut three times by 2024.
8.30 a.m. GMT: Interest rate decision by the Swiss National Bank
9 am GMT: Interest rate decision by the Norwegian central bank (Norges Bank)
12:00 GMT: Bank of England interest rate decision
13.15 GMT: European Central Bank interest rate decision
13:30 GMT: US Retail Sales for November
13.30 GMT: US weekly jobless claims
13:45 GMT: European Central Bank press conference
FTSE 100 hits two-month high
The London stock market rebounds strongly at the start of trading as investors welcome the Federal Reserve’s dovish words last night.
The FTSE 100 index of blue-chip shares rose 136 points, or 1.8%, to 7686, its highest level in two months.
Food technology company Ocado is the top gainer, up 7.6%, and mining companies are also among the top performers, reflecting hopes of an aggressive rate cut next year.
Updated at 03.11 EST
Investors are also predicting a series of rate cuts in the US next year:
US interest rates are now expected to fall by 1.5 percentage points in 2024 – the equivalent of six quarter-point cuts….
*TRADERS EXPECT 150BPS OF FED RATE CUTS FOR THE FIRST TIME IN 2024
– IGSquawk (@IGSquawk) December 14, 2023
…., which is twice as much as Fed policymakers predicted in their forecasts released yesterday.
Latest Fed dotplot. 0.75% of rate cuts seen in median 2024. Three observations: 1) A coherent set of projections – with higher downside risks to growth and recent weak price data in favor of easing; 2) Stubborn refusal to change the long-run estimate for the Fed funds rate.
– Simon French (@shjfrench) December 14, 2023
Markets expect five BoE rate cuts in 2024
Newsflash: Investors expect the Bank of England to cut interest rates more aggressively next year.
Money markets are now suggesting that UK interest rates will have fallen to 4% by the end of 2024. This means that interest rates will be cut by five quarter points next year, instead of four as expected yesterday.
In the Philippines, the central bank has already acted, but it wasn’t really an interest rate thriller in Manila.
The Philippine central bank left its key interest rate unchanged at 6.5% for the second meeting in a row.
Bangko Sentral ng Pilipinas Governor Eli Remolona said in a press conference that the central bank believes it is necessary to strictly maintain monetary policy settings but is ready to adjust them if needed.
Nicholas Mapa of ING explains:
Remolona pointed out that they would monitor the reaction of households and businesses to tighter monetary policy and indicated that they would wait to see the impact of previous rate hikes on the path of inflation. The central bank is likely to extend its pause until inflation is “well within” target and inflation expectations are anchored.
We expect the BSP to pause well into 2024, with potential rate cuts likely to be considered towards the end of next year.