Weekly outlook: US set to hike rates 75bps as BoE holds postponed meeting

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16 September 2022

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Portfolio Adviser

Monday 19 September

– Rightmove UK house price survey
– US NAHB housebuilding industry survey
– In the US, quarterly results from AutoZone and Lennar

Tuesday 20 September

– First-half results from Haleon, Henry Boot, Kingfisher and Anexo
– Trading statements from SThree and TUI
– Japanese inflation figures
– Flash manufacturing and service industry purchasing managers’ indices (PMIs) from Asia, Europe and the UK
– US new housing permits
– US new housing starts

Wednesday 21 September

– Full-year results from Galliford Try and Supermarket Income Reit
– First-half results from Petershill Partners, City Pub Group and Strix
– UK Government borrowing figures
– German ifo business climate index
– Bank of Japan central bank interest rate decision

In contrast to its western counterparts, the Bank of Japan has not moved from its headline interest rate of -0.1%, a level maintained since spring 2016. While inflation in Japan is currently at 2.6%, the highest level since 2014, the BoJ has pressed ahead with a loose monetary policy.

However, according to AJ Bell investment director Russ Mould and financial analyst Danni Hewson, the current state of the yen could prompt a change in approach.

“If Japan wanted to stop its currency plunging, all it must do is change tack on monetary policy and interest rates or dial back on [qualitative quantitative easing], but governor Haruhiko Kuroda seems wedded to both negative rates and QQE and may therefore be unlikely to step back before he steps down at the end of his second five-year term in spring 2023.”

– US existing homes sales
– US oil inventories
– US Federal Reserve Federal Open Markets Committee decision

The US Federal Reserve is expected to increase interest rates to the highest level since the first quarter of 2008 as it continues to deal with higher than expected inflation of 8.5%.

Having already pushed through four rate hikes in 2022, which has seen the Fed Funds rate rise from a record low of 0.25% to 2.5%, the market is currently putting a 0% chance on a half-percentage-point increase to 3%, a 72% chance on a three-quarter point hike to 3.25% and a 28% chance on a full one-percentage-point rise to 3.5%.

Federal Reserve chair Jay Powell is also expected to comment on the Fed’s quantitative tightening programme.

Mould and Hewson said: “The Fed’s balance sheet is already slowly shrinking, and this withdrawal of liquidity could be an interesting test for US equities, which seem to have bathed in the dollops of cheap cash that the US central bank has provided.

“This why the debate over the so-called Powell Pivot, and if or when the Fed does a U-turn and starts cutting rates, and even adding to QE again, is so important.”

Thursday 22 September

– Full-year results from PZ Cussons, Cineworld, JD Sports Fashion and CVS
– Trading statement from Halma
– Bank of England Monetary Policy Committee meeting – DELAYED

The Bank of England will announce its latest policy decision at a delayed monetary policy committee meeting, which was due to take place on 15 September before the death of Queen Elizabeth. The BoE has raised rates six times since last December, currently sitting at 1.75% from a low of 0.1%.

Markets expect a further 75bps increase, with a 65% chance of an increase to 2.5%, while there is a 35% chance of a 50bps increase.

Hewson and Mould also expect to find hints at the BoE’s plans for future interest rate changes.

“[Investors] will look for any indication on what the Bank of England may do going forward, especially as the Federal Reserve seems set on keeping monetary policy tighter for longer than markets had begun to expect.

“For the moment, markets expect the base rate to go from 2.5% to 3% in November and 3.5%, or even 3.75%, in December before they peak at 4.5% next autumn. The first interest rate cuts are expected in very late 2023.”

– Interest rate decision from the Swiss National Bank
– US weekly unemployment claims
– In the US, quarterly results from CostCo, Accenture, FedEx and Darden Restaurants