Last night, the Bank of England decided to hold the base rate unchanged at 0.5%, in contrast to the market’s expectation of the first rate cut in over seven years. As a result, sterling rebounded sharply right after the announcement, and the FTSE 100 index closed slightly lower.
Ahead of the BOE meeting, the futures market implied probability of a 25bps rate cut by the BOE was above 80%, indicating a high expectation of a possible rate cut. However, the new Prime Minister has just entered Downing Street this Wednesday and they probably need a period of transition time to sort things out before implementing stimulus.
The British economy remains resilient, and interest rates have been kept at 0.5% for seven years and that means there is already limited room for rate cuts in order to cushion the economic downturn. It is a probably a wise decision for policy makers to keep the powder dry for the real crisis time, which has yet to come.
Today the market will be watching series of Chinese data coming out at 10am closely, especially the GDP data. The consensus forecast is a 6.6% GDP growth – which is the slowest pace since 2009. Any negative surprise will have significant impact on HK and Chinese shares, CNH, and industrial commodity prices.
Singapore’s securities market experienced a market disruption yesterday, due to a technology issue with SGX’s trade confirmation system. The Singapore securities market halted trading from late morning until market close yesterday. This issue has been solved and the market resumed trading today.
The US equity market has broken a fresh new high, but the question is how far could it go? Equity valuations have been elevated by the prolonged low interest rate environment and market are expecting more monetary easing from the BOJ, ECB and BOE to support the fragile economy. Treasury and equity prices have both climbed to extremely high levels in this flood of liquidity.