November Market Overview

November Market Overview

Central banks tighten?

UK interest rates hiked – The Bank of England has increased interest rates for the first time in a decade, raising its benchmark by a quarter of a percentage point to 0.5 per cent and signalling the start of a gradual increase in borrowing costs. The first UK monetary tightening in a decade came despite forecasts for relatively weak economic performance. The Monetary Policy Committee now expects the UK economy to grow at about 1.7 per cent per annum during the next three years, well below the 2.5 per cent average seen since the second world war.

Shinzo Abe extends term with super-majority – The Japanese Premier managed to win a thumping majority as his gamble of an early election was supported by the Japanese populous. A victory for the Japanese Liberal Democrat Party is likely to bring four more years of positive monetary policy; further liberations for education and women in the work place and a supportive Bank of Japan as the existing governor, Haruhiko Kuroda, is likely to be re-elected in April 2018.

European Central Bank refuse to commit to end quantitative easing – The European Central Bank surprised investors and economic analysts by extending its stimulus programme until at least September next year, pushing down the euro as investors digested Mario Draghi’s refusal to call the end to emergency crisis-era measures. Despite the extension, the central bank still halved bond purchases from €60bn to €30bn starting from January next year. The ECB’s slow taper suggests the central bank will keep interest rates at their current record lows until 2019 — highlighting the gulf in the monetary policies between the eurozone and the US where the Federal Reserve has already started to raise rates.

Eurozone confidence reaches highest level since 2001 – Economic confidence in the eurozone surged to its highest level since 2001 – the best level since the early years of monetary union, to extend the bloc’s surprisingly robust recovery this year. The uptick was driven by strength across the economy’s major growth engines – driven by industry, retail and construction and was the 14th consecutive rise in the indicator.

Trump names Jay Powell as his nominee for the Fed Chair – The President has now named the Federal Reserve Governor Jay Powell as his nominee to serve as the next chair of the Federal Reserve. The broad view is that the Mr Powell, who has been a governor on the Fed board since 2012, represents continuity from the era of Ben Bernanke and current chair Janet Yellen who is slowly unwinding the extraordinary stimulus the bank introduced after the financial crisis. Yellen’s term will end on 3rd February next year where Powell will assume her role.

US economy grows 3% for second straight quarter – The US Economy has continued to perform strongly despite being negatively affected by the natural disasters that have occurred over the previous three months. These strong growth numbers, which were driven by increases in consumption and investment, also highlight the likelihood of further interest rate hikes ahead by the Fed.

 

Source: Financial Times