World Trade

Anticipating Central Bank Moves: A Market Overview by Ankur Banerjee

In the realm of European and global markets, the spotlight shines on the Bank of England (BoE) amidst a day dominated by central bank activities. While the probability of a hike is virtually certain, the only question that remains is the magnitude of the interest rate increase – whether the BoE will opt for a conservative 25 basis points or take a more assertive stance with a 50 basis points raise, signaling a fully hawkish approach.

Following an inflation report that exceeded expectations on Wednesday, market projections indicate a nearly 50% likelihood of the BoE favoring a half percentage point hike. According to a Reuters poll conducted last week, economists were unanimous in their anticipation of a 25 basis points rise, setting the interest rates at 4.75% – the highest level since 2008.

The divergence in policy between the BoE and other major central banks, fueled by the blazing inflation in the UK versus comparatively sluggish inflation elsewhere, has given the British pound a boost. Although the pound showed little movement during Asian trading hours, it remains in proximity to the 14-month peak reached last week.

With China and Hong Kong observing a holiday, trading in Asia experienced a subdued atmosphere. The MSCI Asia ex-Japan index struggled to find a clear direction, while the yen displayed strength against the dollar, hovering around the 141 per dollar mark.

Futures indicate a lower opening for European stocks as market participants analyze comments from Federal Reserve Chair Jerome Powell, which align with his recent hawkish stance. Powell hinted that a majority of policymakers anticipate two further quarter-point rate increases by year-end, emphasizing that the Fed’s decision to maintain steady interest rates last week should not be characterized as a pause. “We didn’t use the word pause, and I wouldn’t use it here,” stated Powell.

While Powell’s remarks were not surprising, doubts persist within the markets regarding the likelihood of the Fed implementing two more hikes. Current market expectations indicate a 72% probability of a 25 basis points hike next month, with no further increases projected, according to the CME FedWatch tool.

In other news, under the leadership of new chief Hafize Gaye Erkan, the central bank of Turkey is expected to enact a substantial policy rate hike, affirming a shift towards economic orthodoxy to combat soaring inflation.

The Swiss National Bank and Norway’s Norges Bank are also scheduled to announce their policy decisions, with a 25 basis points raise widely anticipated from both central banks.

Key developments that could shape market dynamics on Thursday include:

  • BoE’s policy rate decision
  • Turkey’s central bank’s policy rate decision
  • Policy decisions from the Swiss National Bank and Norway’s Norges Bank

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