Yields in renewed weakness amid plethora of central banks meetings
Fawad Razaqzada September 19, 2019 8:15 AM
Over the past 24 hours or so, we have seen lots of central bank action (or inaction) and the message has been clear: global interest rates will remain at or near record lows for the foreseeable future. For that reason, yields have come under renewed pressure (see the chart below). This is helping to keep equity indices supported and near record levels in the case of the US, keeping the bears at bay despite raised geopolitical tensions and concerns over global demand hurting company earnings.
Source: Trading View and FOREX.com
This week’s main event was the Federal Reserve’s rate decision last night. As widely expected - and much to the displeasure of US President Donald Trump - the Fed did indeed cut interest rates by 25 basis points for the second consecutive meeting. There were three dissenters with Rosengren and George voting for no change again, while Bullard called for a larger 50 bps cut. But contrary to expectations, there was an element of a hawkish surprise as the so-called dot plots revealed a median view for a pause through to next year, rather than 2 more cuts expected. Still, it wasn’t hawkish enough to completely derail the rally on Wall Street.
The Bank of England was the latest major central to make a decision on interest rates today. “Shockingly,” it decided to leave its monetary policy unchanged. But it did strike a dovish tone, as it raised the prospects of a rate cut for the first time should Brexit uncertainty persists. The MPC said there was “entrenched uncertainty” over Brexit, which means “domestically generated inflationary pressure would be reduced”.
Elsewhere, the central bank of the world’s third largest economy disappointed some very hopeful expectations overnight despite exports falling there for the ninth consecutive month. The Bank of Japan decided to leave all policy settings unchanged, as widely expected. Its forward guidance was the same: extraordinary low policy to remain unchanged for an extended period at least through spring 2020.
In Hong Kong, the central bank decided to lower its base rate by 25 basis points to 2.25%, as expected and in tandem with the Fed.
Meanwhile there was some speculation that the Swiss National Bank would take some sort of policy action following the European Central Bank’s decision last week to re-introduce QE and cut rates further into negative. But the SNB decided against such a move this morning, even though it slashed its growth forecast for the year due to rising global headwinds.Now there was one central bank which bucked the trend again and lifted interest rates. Norway’s central bank decided to hike rates by 25 basis points to 1.5%. This was Norges Bank’s fourth hike in the past year but probably it’s last for a while as other banks ease policy.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.