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The US Stock Market Is Selling Off Again. The Bank Of England Unecpectedly Raised Its Key Interest Rate

The US stock indices ended Thursday’s trading in the red zone. The technology sector saw a strong sell-off, which negatively affected the entire market. The S&P 500 (US500) decreased by 0.9%, the Dow Jones (US30) decreased by 0.1%, and the Nasdaq (US100) lost 2.5%. Meanwhile, the financial sector was the best performing, as investors believe that US Treasury yields will rise in the coming months after the Fed meeting.

European stock indices, on the other hand, looked green yesterday. French CAC 40 (FR40) gained 1.12%, German DAX (DE30) added 1.03%, Spanish IBEX (ES35) increased by 1.27%, while British FTSE 100 jumped by 1.25%. The Bank of England unexpectedly raised its key rate to 0.25% from 0.1%. At the same time, the central bank left the volume of the government bond-buying program at the level of 875 billion pounds.

The main theses from the head of the Bank of England Andrew Bailey:

  • inflation could reach 6% in the coming months;
  • inflation is also on the rise due to tensions with Russia;
  • Omicron will undoubtedly have a significant impact on economic activity;
  • the labor market is currently very tight.

On Thursday, the European Central Bank raised its inflation forecasts and lowered expectations for economic growth in 2022 because of the impact of the coronavirus pandemic and supply chain problems. The ECB expectedly kept its prime rate at zero level, while the deposit rate was left at minus 0.5%. The ECB will end its PEPP program in March 2022. The ECB can also extend PEPP reinvestment until at least the end of 2024. With a high probability, investors should not expect the ECB to raise interest rates in 2022. The ECB’s inflation forecasts are 2.6% (revised from 2.2%) for 2021, 3.2% (revised from 1.7%) for 2022, 1.8% (revised from 1.5%) for 2023, and 1.8% for 2024.

On Thursday, the Swiss National Bank (SNB) remained its ultra-soft monetary policy, deviating from the tightening course that a growing number of central banks are following. The SNB said its current policy, which combines the world’s lowest interest rates with intervention in the foreign exchange market, remains appropriate, despite the Swiss franc’s rise to six-and-a-half-year highs. As expected, Norway’s central bank raised its benchmark interest rate on Thursday and predicts more hikes to follow next year.

Germany’s regulator doesn’t expect Nord Stream 2 to start in the 1st half of 2022.

The Turkish lira fell to another record low as Turkey’s central bank cut interest rates from another 100 bps to 14%. The Turkish central bank cut its benchmark rate for the 4th consecutive quarter despite a sharp rise in inflation and the lira falling to record lows. The lira lost 51% against the dollar since the beginning of the year.

The ECB’s oil price forecast: $71.8 per barrel for 2021, $77.5 per barrel for 2022, $72.3 per barrel for 2023, and $69.4 per barrel for 2024. On Thursday, oil prices increased as an indicator of consumer demand for gasoline in the US rising to a record high. Also, the price increase affects a sharp decline in crude oil reserves, which was published on Wednesday.

Stock markets in the Asia-Pacific region ended Thursday trading on the green territory, except for the Australian stock index. Hong Kong’s Hang Seng (HK50) increased by 0.2%, Japan’s Nikkei index (JP225) added 2.1%. Australia’s S&P/ASX 200 (AU200) decreased by 0.4%. Japan has seen a significant increase in exports. It was driven by strong demand from Japanese companies ahead of the holiday season and some easing of supply chain problems.

Stock markets in the Asia-Pacific region ended Thursday trading on the green territory, except for the Australian stock index. Hong Kong’s Hang Seng (HK50) increased by 0.2%, Japan’s Nikkei index (JP225) added 2.1%. Australia’s S&P/ASX 200 (AU200) decreased by 0.4%. Japan has seen a significant increase in exports. It was driven by strong demand from Japanese companies ahead of the holiday season and some easing of supply chain problems.

The Bank of Japan made no changes to its ultra-soft monetary policy as it monitors the impact of a new variant of the Omicron coronavirus. At the same time, the Bank of Japan decided to cut its funding support program due to the effects of COVID-19 as financing conditions for large companies improve. The interest rate remained unchanged.

Main market quotes:

  • S&P 500 (F) (US500) 4,668.67 −41.18 (−0.87%)
  • Dow Jones (US30) 35,897.64 −29.79 (−0.083%)
  • DAX (DE40) 15,636.40 +160.05 (+1.03%)
  • FTSE 100 (UK100) 7,260.61 +89.86 (+1.25%)
  • USD Index 95.98 −0.53 (−0.55%)

Important events for today:

  • Japan BoJ Interest Rate Decision at 04:30 (GMT+2);
  • Japan BoJ Monetary Policy Statement at 04:30 (GMT+2);
  • UK Retail Sales (m/m) at 09:00 (GMT+2);
  • Germany IFO Business Climate Index (m/m) at 11:00 (GMT+2);
  • Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
  • US FOMC Member Wallers’ speech at 20:00 (GMT+2).

 

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