24 March 2023
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Bank of England gets a hike over the line

By Edward Bell

The Bank of England hiked the Bank Rate by 25bps, bringing policy rates up to 4.25%. The vote split was 7-2 with the two dissenting members voting for rates to remain on hold. The BoE did highlight the volatility in financial markets but believes that the banking system in the UK is “resilient,” leaving the bank to focus on its inflation challenge. Inflation in the UK for February came in faster than expected, rising by 10.4% y/y, up from 10.1% a month earlier and disappointing markets that had been looking for a deceleration. The BoE noted that core goods inflation in particular remains quite high though it expects inflation to slow substantially over the rest of the year.

The Turkish central bank held its one-week repo rate steady at its March meeting yesterday, leaving the benchmark index at 8.50%, following on from the 50bps cut enacted the previous month. The bank noted the need to ‘keep financial conditions supportive’ for growth in the wake of the recent earthquake, but judged that the ‘current monetary policy stance is adequate’, with the keeping of the phrase for the second month running suggesting that sharp rate cuts are not on the table for now, especially as the bank’s statement noted that there remain upwards price pressures in global goods markets. The bank pledged to closely monitor the effects of the earthquake in the first half of the year, with the natural disaster having added a further layer of uncertainty to that stemming from international markets.

Weekly initial jobless claims in the US ticked lower in the week ending March 18 to 191k, down from 192k a week earlier and far better than the 197k expected by the market. Continuing claims in the week ending March 11 did rise, up to 1.694m from 1.684m a week earlier. Overall though, conditions in the labour market, at least at a headline level, remain strong as noted by the FOMC in their rate hike decision earlier this week.

Inflation in Japan slowed substantially in February, with the headline index rising by 3.3% compared with 4.3% a month earlier. The drop looks to be down to cheaper energy costs in February as oil and natural gas prices had lingered. Core inflation though picked up, rising to 3.5% from 3.2% a month earlier.

Today’s Economic Data and Events

  • 11:00 UK retail sales Feb m/m: forecast 0.2%
  • 12:15 FR composite PMI Mar: forecast 51.5
  • 12:30 GE composite PMI Mar: forecast 51
  • 13:00 EC composite PMI Mar: forecast 52
  • 13:30 UK composite PMI Mar: forecast 52.7
  • 16:30 US durable goods orders Feb: forecast 0.5%
  • 17:45 US composite PMI Mar: forecast 49.5

Fixed Income

  • US Treasury markets had another strong day as investors position themselves for rate cuts along the rest of the year, in contrast to the Fed’s expectation for one more hike and then a hold. Yields on the 2yr UST yield dropped 10bps to 3.833% overnight while the 10yr closed near flat after some choppy trading at the close, ending the day at 3.4266%.
  • Bond markets in Europe also had a strong day with 10yr bund yields down 13bps at 2.189% while gilt yields fell about 9bps to 3.353%. Markets see scope for at least one more 25bps hike from the Bank of England before a rate cut is tentatively priced in for early 2024.
  • Emerging market bonds caught a bid overnight with a broad USD-denominated index up 0.4% overnight.
  • Moody revised their outlook on Saudi Aramco to positive from stable and affirmed the rating at ‘A1’. The rating agency also revised the outlook on Saudi Electric and SABIC to positive.


  • A late return to risk-off sentiment helped to lift the dollar overnight though the gains were mostly at the expense of the euro. EURUSD fell 0.2% to 1.0831, snapping five days in a row of gains. GBPUSD got a boost from the Bank of England sticking with a rate hike, up by 0.2% to 1.2287 while USDJPY dropped by 0.5% to 130.85.
  • Commodity currencies closed more mixed with USDCAD down 0.1% to 1.3715 in favour of the loonie while AUDUSD closed flat and NZDUSD pushed up by about 0.5% to 0.625.


  • Chinese equity markets had a good day yesterday. On the mainland, the Shanghai Composite added 0.6% while the Hang Seng gained 2.3%. In Japan, the Nikkei closed down 0.2% however.
  • In the UK, the FTSE 100 closed down _%, weighed down by the stronger pound. On the continent, the major indices reversed some of their losses earlier in the session so that the DAX closed almost flat while the CAC added 0.1%.
  • US markets staged a modest recovery following from the losses the previous day. The S&P 500 and the Dow Jones both added 0.3%, while the NASDAQ closed 1.0% higher.
  • Locally, the DFM ended the day down 0.9% while the ADX dropped 0.6%. In Saudi Arabia, the Tadawul closed up 0.9%.


  • Oil prices dipped overnight, down 1% in the Brent market to USD 75.91/b and by 1.3% in WTI to USD 69.96/b. The US energy secretary, Jennifer Granholm, said it would be “difficult” for the government to take advantage of the drop in oil prices to take steps to refill the strategic petroleum reserve, saying rather that it would take “a few years” to replenish inventories.

Written By

Edward Bell Head of Market Economics

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