In a week chock-full of central bank meetings, today investors finally got a volatility-inducing surprise.
The shocking news came from the United Kingdom, where the Bank of England surprisingly decided to increase the interest rate for the first time since the coronavirus pandemic began. The hike saw the rate change from 0.1% to 0.25% with eight out of nine voting members endorsing the increase (whereas only 2/9 was expected in terms of support).
The decision came just a day after the November inflation rate reports were published in the UK. The numbers showed inflation is growing at a faster rate than expected, so it seems the Bank of England chose to act immediately.
The other central bank meeting of the day is that of the ECB. The European Union is also struggling with high inflation, but so far ECB President Christine Lagarde has maintained that the spikes will resolve themselves in time, indicating that the central bank is not considering any hawkish measures at the moment.
Besides these meetings, there are also many interesting reports due today, beginning with flash PMI data for December.
Australia’s manufacturing and services PMIs were both lower than the previous month, with the services one coming in below the forecast as well.
Germany published a better than expected manufacturing PMI at 57.9, but disappointed with the services and composite indices.
A similar trend was observed in the eurozone as a whole, where the manufacturing PMI was higher than anticipated, but the composite index was below the forecast.
In the United Kingdom, the manufacturing PMI was exactly in line with the forecast, but the services and composite indices failed to meet investors’ expectations.
The United States will publish its own flash manufacturing PMI data later in the day.
Other notable reports today included a lower than anticipated unemployment rate in Australia in November, combined with a higher employment change number, which overall bodes well for the Australian labor market.
In addition, as is typical of any Thursday, the United States will publish its weekly jobless claims reports sometime later today.
Last but not least, it is worth noting that today the financial markets will also still be digesting the impact of yesterday’s Federal Reserve meeting. Chairman Jerome Powell announced that the regulator will end all of its bond purchases by March and is prepared to do three rate hikes next year.
Tech and bank stocks, in particular, have responded very well to the hawkish turn in monetary policy in the United States. Some of the usual suspects such as Amazon, Microsoft, Tesla, Wells Fargo, Morgan Stanley, etc. have all seen their stock climb steadily since the announcement of the Fed.
Overall, US stock indices are also going up, while Treasury yields are going down.
