Stock Market Today
US and European futures are trading sharply higher today as traders are picking up the momentum from Asia. Investors pushed the stocks higher on solid earnings from Chinese tech companies. The hawkish talk among the Fed members about the future interest rate hike remains a focal point among investors while oil prices are moving lower after the OPEC’s supply increase.
Traders are unlikely to place any bigger bets today as they will like to see the US NFP reading first, which is coming out tomorrow. If the number shows that the labour market is still strong, we will likely see more confidence among the market players, boosting optimism among traders.
Speaking of the strength of the labour market and market optimism, traders are still digesting the news from Walmart, which announced hundreds of layoffs. As we mentioned a few times before, if there is one coherent message from the current earning season, the companies are aggressively laying staff off to make their operation more efficient to fight the potential recessionary environment more appropriately.
The Big Day For The BOE
At its June meeting, the Bank of England announced that it would “act decisively” if it noticed continuing inflationary pressure. Since then, the economic data has shown consistent inflation pressure. This has increased the pressure on the BOE; therefore, we are anticipating a 50-basis-point interest rate hike today.
The important thing after this meeting is the future path of the interest rate hike for the UK’s economy. According to our base scenario, the central bank would resume its more customary 25-basis points interest rate hikes, raising interest rates to 2.75 per cent by February. Everything is still data-dependent, so we are not ruling a much faster rate hike after this meeting if the inflation doesn’t show any signs of weakness.
We anticipate policymakers will vote 7-2 to increase interest rates from 1.25 per cent to 1.75 per cent. Silvana Tenreyro and Jon Cunliffe will likely support a 25 basis points interest rate hike. The degree of support for disproportionate rises was unknown before the June conference. It appears that at least six of the nine members of the committee now believe a 50-bp raise is feasible based on the advice that came after it and comments made by both Bailey and Chief Economist Huw Pill. Ben Broadbent, a well-known deputy governor, is possibly one of them.
According to market pricing, a 50 basis points interest rate move has a roughly 80% possibility. There are greater chances that we may see a technical recession taking place in the UK. In addition, we envision the committee will lower its growth prediction for this year. Due to a higher-than-anticipated increase in home energy costs in October, CPI inflation is projected to peak during the fourth quarter, peaking above 12 per cent.
The MPC said in May that it would give an update on its active gilt sales policy at the meeting in August. According to Governor Andrew Bailey, the pace of balance sheet run-off (including redemptions) will be between £50 billion and £100 billion in the first year. Sales might commence as soon as October if an affirmative vote occurs in September.
Gold
Gold prices are steady and trading higher for the second consecutive day today as the focus among investors and traders remains on the US NFP data and the Fed’s monetary policy. A strong US NFP number may increase the odds for the Fed to do more front loading concerning their interest rate hikes. For now, market players anticipate that the Fed will only increase the interest rate by 50 basis points, creating some weakness for the dollar index, which supports the gold price. However, if the expectations shift from 50 basis points to 75 basis points, we could easily see the gold price moving lower as the dollar index could rip to the upside.