Fed and Bank of England expected to keep rates on hold this week

Fed and Bank of England expected to keep rates on hold this week

Global stock markets were lower last week. Fears of escalation in the war in the Middle East, higher Treasury yields (the yield on the 10-yr US Treasury briefly rose above 5% for the first time in sixteen years) and mixed earnings reports from US mega-cap tech companies weighed on investor sentiment. The VIX, volatility index (also called the Fear Gauge) closed the week above 21 as it did the previous week; prior to that VIX had been below 20 since late March.

GDP grew more than expected in the third quarter on an annualised basis. Data showed the US economy expanded by 4.9% according to the preliminary estimate. The strong growth was driven by consumer demand and keeps pressure on the Federal Reserve. Even so, the central bank is not expected to announce a further rate this week when the FOMC Meeting concludes on Wednesday because inflation is heading down – the PCE index (the Fed’s favoured measure of inflation) was lower in September, at 3.7% – down slightly from 3.8% the previous month.

The ECB kept interest rates on hold at 4.0%, lifting hopes that they have peaked at last for the eurozone. Christine Lagarde (ECB President) said that inflation “is still expected to stay too high for too long” but at the same time had “dropped markedly” last month.

The Office for National Statistics (ONS) reported a slight rise in the rate of unemployment to 4.2% in the three months to the end of August. This indication that the jobs market could be slowing may be enough for the Bank of England to keep interest rates on hold again this week.

UK Market Chart 27th October 2023

US Market Chart 27th October 2023

US Risk Barometer 27th October 2023

Europe Risk Barometer 27th October 2023

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