22 Jun

The UK and Swiss Central Banks intend to raise interest rates further today

June 22, 2023

By JustMarkets

The US stock indices closed lower on Wednesday as Federal Reserve Chairman Jerome Powell’s statement to Congress reinforced the central bank’s goal of curbing inflation. Powell said the Fed is at the end of its tightening cycle but also hinted at the possibility of further interest rate hikes at the July meeting. At yesterday’s stock market close, the Dow Jones Index (US30) decreased by 0.30%, and the S&P 500 Index (US500) lost 0.52%. The Technology Index NASDAQ (US100) closed negative by 1.21% on Wednesday. All three major US stock indices declined for the third day straight.

According to the CME FedWatch tool, financial markets are estimating a 72% chance of another 25 basis point interest rate hike at the conclusion of the July meeting.

The Federal Reserve should not raise interest rates any further, or it risks undermining the strength of the US economy, Atlanta Federal Reserve President Rafael Bostic said Wednesday. The policymaker believes the rate should be held at current levels for the rest of the year from now on. Federal Reserve Bank of Chicago President Austen Goolsbee said Wednesday that the US Central Bank needs more clarity on inflation and the labor market trajectory before deciding its next move. This suggests that the Fed no longer has a consensus about the next meeting.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.55%, French CAC 40 (FR40) lost 0.46%, Spanish IBEX 35 (ES35) added 0.03%, and British FTSE 100 (UK100) closed down by 0.13%.

In the UK, the consumer price level remained at 8.7% (8.4% was expected) in annual terms. At the same time, core inflation rose from 6.8% to 7.1% y/y. The Bank of England will hold a monetary policy meeting today where a 0.25% rate hike is expected, but because of the inflation shock, there may be surprises in the form of a 0.5% hike. Economists believe the Bank of England will raise the rate by 0.25% and point to another hike in August.

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The Swiss National Bank (SNB) will also hold a monetary policy and interest rate meeting today. There is almost a 100% chance that the SNB will raise the rate by 0.25%, from 1.5% to 1.75%. Although inflation in Switzerland fell to 2.2% in May, the lowest among advanced economies, the SNB does not believe interest rates are in restrictive territory.

The US corn and soybean prices jumped to multi-month highs, reinforcing expectations that a bad harvest worldwide could reduce demand for biofuels and increase demand for oil.

Asian markets traded yesterday without a single dynamic. Japan’s Nikkei 225 (JP225) gained 0.56% on the day, China’s FTSE China A50 (CHA50) lost 1.00%, Hong Kong’s Hang Seng (HK50) fell by 1.98% on Wednesday, and Australia’s S&P/ASX 200 (AU200) closed negative by 0.58%. Most Asian stocks continued to decline on Thursday, following an overnight decline on Wall Street, as Federal Reserve Chairman Jerome Powell indicated the possibility of further interest rate hikes. But regional trading volumes were limited as China and Hong Kong went on a bank holiday for the rest of the week.

Bank of Japan governor Asahi Noguchi said Thursday that the central bank needs to maintain its ultra-soft policy in the near term to ensure sustainable wage growth.

S&P 500 (F) (US500) 4,365.69 −23.02 (−0.52%)

Dow Jones (US30)33,951.52 −102.35 (−0.30%)

DAX (DE40) 16,023.13 −88.19 (−0.55%)

FTSE 100 (UK100) 7,559.18 −10.13 (−0.13%)

USD Index 102.07 -0.47 (-0.46%)

Important events for today:
  • – Switzerland SNB Interest Rate Decision at 10:30 (GMT+3);
  • – Switzerland SNB Monetary Policy Assessment at 10:30 (GMT+3);
  • – Switzerland SNB Press Conference at 11:00 (GMT+3);
  • – Norway NB Interest Rate Decision at 11:00 (GMT+3);
  • – UK BoE Interest Rate Decision at 14:00 (GMT+3);
  • – UK BoE MPC Meeting Minutes at 14:30 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – US FOMC Bowman Speaks at 16:55 (GMT+3);
  • – US Existing Home Sales (m/m) at 15:30 (GMT+3);
  • – US Fed Chair Powell Testifies at 17:00 (GMT+3);
  • – US FOMC Mester Speaks at 17:00 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 18:00 (GMT+3).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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