Weekly outlook: Central banks take centre stage as BoE and Fed eye up further rate hikes

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10 June 2022

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Kirsten Hastings

Monday 13 June

– Full-year results from GB Group and Volex
– German wholesale price inflation
– UK GDP, manufacturing output and industrial production monthly growth
– In Asia, quarterly results from L’Occitane
– In the US, quarterly results from Oracle

Tuesday 14 June

– Full-year results from Oxford Instruments and CML Microsystems
– First-half results from Crest Nicholson
– Trading statements from Bellway and Ferguson
– UK unemployment and wage growth
– US NFIB smaller companies survey
– US producer price inflation

Wednesday 15 June

– Full-year results from JD Sports, AO World and Bloomsbury
– Trading statement from WH Smith
– Chinese fixed asset investment, industrial production and retail sales monthly growth figures
– US Federal Reserve monetary policy decision
– US retail sales
– US NAHB housebuilders survey
– US oil inventories
– In Europe, quarterly results from French semiconductor materials specialist Soitec
– In the US, quarterly results from Jack Daniel’s distiller Brown-Forman and GameStop

AJ Bell investment director Russ Mould and financial analyst Danni Hewson described it as “one of those weeks when central banks take centre stage, although whether markets still feel they are omnipotent is becoming a matter for debate, after former Fed chair Janet Yellen’s admission that her 2021 message about inflation being transitory was off the mark”.

“To err is to be human, after all, but maybe such refreshing honesty will remind markets of the risk of central bank policy error, as the authorities potentially face a choice between raising rates and slowing the economy down on one hand, or letting inflation run away and do damage in a different way, but with possibly the same end result, on the other.

“That sets the stage for the next policy pronouncements from the US Federal Reserve on Wednesday 15 June and then the Bank of England on Thursday 16.”

Last month, the Federal Open Markets Committee (FOMC) hiked its headline funds rate by 50bps, the biggest increase since May 2000.

Mould and Hewson continued: “Chair Jay Powell also firmed up the Fed’s quantitative tightening policy, as it seeks for the third time to withdraw quantitative easing. This is an effort to both reduce the reliance of both the US economy and America’s financial markets upon cheap, easy money and rein in inflation by dampening demand.

“The plan is to reduce QE by $47.5bn a month in June, July and August and then step up the pace to $90bn from September. Total Fed assets stand at a record $8.9trn, more than double where they were before the pandemic and 10 times what they were before the 2007-09 great financial crisis.

“Prior attempts at QT in 2013 and 2018-19 ended in the face of the so-called ‘taper tantrum’ and an economic slowdown (and then the pandemic) respectively so it will be intriguing to see how bold the Fed feels it can be this time around.”

The odds of a further 50bps rise at the June meeting has been put at 98%, according to the CME Fedwatch service, taking the rate to 1.5%.

Mould and Hewson added: “Also, watch for any guidance on the July meeting when a half-point increase 2% is seen as a 93% chance. By the end of the year, after three more Fed meetings, markets think US rates are likely to be touching 3%.”

Thursday 16 June

– Full-year results from Halfords and Biffa
– Trading statements from Boohoo and N Brown
– Interest rate decision from the Swiss National Bank
– Bank of England monetary policy decision
– German ZEW manufacturing survey
– US weekly unemployment claims
– In the US, quarterly results from Adobe, Kroger and Jabil

A day after the FOMC gathers, the Bank of England’s Monetary Policy Committee meets.

Mould and Hewson said: “At its last meeting in May, the Bank of England pushed through its fourth rate rise of this cycle, a quarter-point increase to 1% and announced that QE stood at £867bn, down from its peak of £895bn.

“Markets are pricing in 25 basis-point increases in June, August, September, November and December to get us to 2.25%.

“That is a slower rate of progress compared to the US, and that forecast interest rate differential may help to explain the pound’s latest slide against the dollar, but it is quicker than the expected pace of increases from the European Central Bank, which may be one reason why sterling is doing a better job of holding its own against the euro – although the currency is well down from the levels that prevailed before the EU referendum vote of six years ago this month,” they added.