UK, Japan, and Turkey central banks all hold rates steady

The Bank of England kept its benchmark bank rate on hold at 5.0% at its MPC meeting yesterday, as had been widely anticipated. The vote was 8-1 in favour of the hold, a more unanimous decision than the 5-4 split that decided on the initial 25bps cut following the previous meeting. Governor Andrew Baily struck a fairly cautious tone, saying that the bank had to ‘be careful not to cut too fast or by too much’ as it was ‘vital’ that inflation stays low. Quantitative tightening will continue at the pace of GBP 100bn annually in a unanimous decision. In terms of forecasts, the BoE now expects inflation at 2.5% y/y at the end of 2024, down from 2.8% previously. The August print came in at 2.2% on Wednesday, unchanged from July.

The Bank of Japan also stayed on hold this morning, leaving its unsecured overnight call rate at around 0.25%. This had been widely expected after July’s surprise move that prompted summer turmoil in markets, although with inflation ticking up, further tightening is expected. Japan’s CPI inflation accelerated to 3.0% w/w in August, up from 2.8% the previous month, while core inflation rose to 2.8%, from 2.7% previously. Both figures were in line with expectations. The core measure of inflation has been comfortably above the target 2.0% rate for nearly two and a half years, so another hike from the central bank looks likely before year-end.

The Turkish central bank also kept its benchmark rate on hold yesterday, leaving the one-week repo rate at 50.00% for the sixth month in a row. However, the tone of the statement was somewhat more dovish than recent issuances had been, as a pledge to tighten further if needed has now been removed. Annual CPI inflation was 52.0% y/y in August, so while real rates are still in negative territory, this is to a far slighter degree than earlier in the year. The central bank forecasts a year-end inflation rate of 38.0%.

US initial jobless claims fell to 219,000 in the week to September 14, down from 231,000 the previous week and missing the predicted 230,000. This was the lowest weekly print since May, although the Labor Day holiday might have impacted the data. Continuing claims also fell last week, dropping to 1.83mn, from 1.84mn the previous week.

Today’s Economic Data and Events

10:00 UK retail sales, % m/m, August. Forecast: 0.4%

Fixed Income

• Shorter-dated US treasuries resumed their rally yesterday after it was interrupted by Jerome Powell’s relatively hawkish language at the FOMC press conference on Wednesday. Yields on the 2yr fell 4bps to 3.5813%
• However, yields on the 10yr ended the day 1bps higher at 3.7131%, with the stronger than expected weekly claims data prompting the rise.

FX

• The dollar index closed almost flat yesterday, with a relatively mixed performance against its basket of peers.
• Most of the majors strengthened against the greenback, with GBP adding 0.5% to 1.3284, and EUR 0.4% to 1.1162.
• However, both JPY and CHF lost ground against the dollar, both weakening by 0.2%.

Equities

• Equity markets resumed their rally yesterday, with another fresh high for the S&P 500 as it closed up 1.7%. The Dow Jones added 1.3% and the NASDAQ gained 2.5%.
• In Europe, the FTSE 100 added 0.9%, the DAX 1.6%, and the CAC 2.3%.
• Locally, the DFM added 0.7% and the ADX 0.8%.

Commodities

• A further escalation in Middle East tensions combined with a general risk-on rally in markets as the likelihood of the Fed managing a soft landing rose, prompting oil prices to see robust gains yesterday.
• Brent futures climbed 1.7% to USD 74.9/b, while WTI added 1.5% to USD 72.0/b.