Press Release Summary: Interest rate statements dominated the headlines last week. 'Statement' was the operative word because the Bank of England surprised many by offering a statement with a "no change" announcement. It is very rare for the BOE to offer a statement without a change in rates, and the last few times they have done this, rates were cut the following month. This is perhaps unlikely to happen this time, but coupled with the billion pound cash injection last week, at least it seems the Old Lady of Threadneedle is softening her non-interventionist stance.
Press Release Body: Interest rate statements dominated the headlines last week. 'Statement' was the operative word because the Bank of England surprised many by offering a statement with a "no change" announcement. It is very rare for the BOE to offer a statement without a change in rates, and the last few times they have done this, rates were cut the following month. This is perhaps unlikely to happen this time, but coupled with the billion pound cash injection last week, at least it seems the Old Lady of Threadneedle is softening her non-interventionist stance.
As expected the ECB kept rates on hold, while keeping their tightening bias. The FOMC meeting next week continues to rise in importance, with the Fed sending out further mixed messages on its intentions. Many are pricing in a quarter point rate cut, but it is what the bank says in their statement, and the market's reaction that could be crucial. Assuming there is a cut, the question on everyone's lips is; could there be more cuts to follow, or will this be the only one?
Many voting Fed members went on record last week with hawkish comments. Hoenig said that there is a lack of 'strong evidence' that the financial-market turmoil has infected the economy. Poole said that the Fed officials 'cannot be slaves to market expectation' and that we 'shouldn't take for granted that the economy is going into nosedive'. Anyone relying on a substantial Fed bailout may wish to think again. Fridays weak NFP threw a curveball at the Fed who now have an extremely hard few months ahead of them. Elsewhere oil prices rose to nearly $80 per barrel, on news of potential conflict in the Middle East, and inventories falling sharply.
Notable economic announcements next week are the US trade balance and industrial production figures. These will provide recent data on the strength of the US economy. We'll also gain an insight into how well consumers are bearing up in the face of this financial instability, with retail figures from the US and the UK. News that mortgages are set to rise, despite headline rates remaining the same in the UK, may not have time to trickle into these figures.
BetOnMarkets.com noticed on Friday that risks still remain to the downside. The inter bank lending rate has shot up, causing many to question just what they know about each others exposure in the debt market. Therefore a 'no touch' with a 17 day term, 95 points above the S&P 500 spot price, could return value at 8% ROI.
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