Wayne Cole looks at what will happen on European and international markets tomorrow.
So, Jerome Powell found a way to stop the market from talking about a pivot while leaving the door open for smaller rate hikes.
Obviously, the Fed’s head doesn’t want the bond market to go up so much that it makes things easier for the U.S. economy while inflation is still high. In a strange way, the Fed will be less likely to give bonds a turn when they are priced in a turn.
Because of this, the May Fed funds rate has moved from 4.90% at the end of last week to 5.08%, and there is less chance that a cut will be priced in by the end of next year. The yield curve went from being steep to flat, which hasn’t happened since the turn of the century.
Now it’s time for the Old Lady of Threadneedle Street to come on stage right and do her act for the cameras. The Monetary Policy Report comes out at noon (1200 GMT), and a half-hour later, a live news conference is broadcast on the Bank of England’s website.
The markets are expecting an increase of 75 basis points to 3.0%, which would be the highest since 2008. What happened to the good old days when the rate was 10% or more?
Some are talking about 50 bps, but that could lead markets to think that the BoE isn’t serious about bringing inflation down, which would scare gilts again. Equally, 100 bps would only make people worry about a recession that gets worse and a budget black hole that gets bigger.
In any case, the BoE will have to change its CPI forecasts and cut its GDP forecasts. This will be a sad show compared to the comedy show that is current government policy.
Thursday could also be a big day for the markets because of:
Initial U.S. jobless claims are expected to be 220,000.
55.5 is expected for the ISM service sector PMI.
ConocoPhillips (NYSE: COP), Kellogg (NYSE: K), and Starbucks are all reporting earnings (NASDAQ: SBUX).
