UK inflation to keep BoE on cautious path By Reuters

A look at the day ahead in European and global markets from Rae Wee

With the Federal Reserve’s highly anticipated rate cut done and written, the Bank of England (BoE) is next in the spotlight for a rate decision, although Thursday’s outcome looks unlikely to be a cap.

The BoE does not have the luxury of claiming “higher confidence” – as the Fed pointed out in its statement – ​​that domestic inflation is nearing the bottom. Certainly not with UK services inflation running at an annualized 5.6%.

All this cements the case for a stable outcome later in the day, with rates likely to remain unchanged at 5.0%.

In any case, BoE policymakers are likely to reiterate their “cautious” stance against easing too fast or too soon.

Still, equity futures point to a positive open for Europe, with EUROSTOXX 50 futures also rising sharply as equity market exuberance over the Fed’s huge rate cut spills over from Asia.

However, the reaction of the currency market was a classic case of “buy the rumor, sell the fact”.

The dollar clawed back losses against most of its peers, rising more than 1 percent against the yen at one point.

The focus on Thursday may be less on the BoE’s rate decision than on next year’s target to reduce its gilts balance sheet, which has become bloated during the pandemic. The market expects to target another 100 billion pounds ($132 billion) of cuts over the next 12 months.

This could be a potential boon for the bond market, as a repeat of this target would mean a 75% reduction in active gilt sales due to a large debt maturity program that would automatically exit.

Another of note on Thursday was a broad drop in Chinese bond yields on expectations that Beijing may soon announce more policy easing to support its struggling economy now that the Fed is out of the way.

Shares in Hong Kong and China also reversed early losses and traded higher on expectations of further stimulus measures.

Key developments that could influence markets on Thursday:

– Bank of England rate decision

– Weekly US Jobless Claims

(By Rae Wee; edited by Edmund Klamann)