Making sense of this crazy world
Interest rates on hold, but for how long?
As economies weigh up the likely impacts of the conflict in the Middle East, the Federal Reserve (Fed), the Bank of England (BoE) and the European Central Bank (ECB) all announced interest rates are to be kept on hold. Central banks warned of the possibility of higher inflation, and the drag this could have on their respective economies and, indeed, the prospects of higher interest rates.
Stock-market-wise, we experienced three days of consecutive gains earlier in the week, as buyers were tempted back in and the frequency of missiles from Iran reduced. However, yesterday, bonds and equity markets tumbled as investors digested the news that the region faces a protracted energy shock, following attacks on infrastructure in Iran and Qatar.
The hope is that the relative feeling of isolation by the US from fellow NATO members, along with the backlash from other Arab nations, may result in the end of this conflict, sooner rather than later. Trump has attempted to calm the markets, and Netanyahu (Israel’s Prime Minister) said the country will heed Trump’s call not to repeat attacks on key Iranian energy sites like the South Pars Field.
This week’s content:
- Interest rates on hold… for now!
- Conflict escalates
- Bonds and equities are in a spin
- Not all oil price hikes are equal… it’s a question of geography
- NATO allies turn against Trump
- What will the Iran war mean for Trump and the mid-term elections?
- What’s the outlook for the markets?
- Conclusion
Interest rates on hold… for now!
The BoE’s Monetary Policy Committee opted to hold interest rates at 3.75% amid inflationary concerns, falling in line with the Fed, and followed by the ECB.
You may remember that towards the end of February, there was deemed to be an 88% chance of a rate cut in March. A dramatic shift, and if this conflict is prolonged, then we would expect a rate hike in the next three months.
Mortgage rates have already risen as the swap markets price in rising rates.
Let’s hope the economist at PIMCO is right when he says, “Ultimately, the BoE will look through this inflation shock and continue cutting rates over time. The timing, however, has become more uncertain, and it is possible the BoE delays cutting until late this year or even next” (source: Investment Week).
Continues…
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