US Interest Rate Decision Tomorrow
Tomorrow will see the Federal Reserve make their latest interest rate decision, where the market is expecting the FOMC to commit to a 50bp rate hike, which would bring the base interest rate to 1% and represent the first 0.5% hike since 2000. Much of this market expectation follows a speech from Chairman Powell earlier last month where he stated that a “50 basis points [rise] will be on the table for the May meeting”. Moreover, with headline inflation currently standing at 8.5% (and expected to rise further), there is increasing pressure on the Fed to contract the money supply and bring things back on course to their 2% inflation target . Many analysts are speculating that a further two 0.5% hikes may come in before the end of summer and as such the general market consensus now suggests that the base interest rate could be 2.75% by the end of the year.In addition to this, we are expected to gain further insight into the Fed’s next steps regarding their QE programme. At the last meeting we learn that the nine-trillion-dollar balance sheet is set for a $95bn monthly reduction.

While inflation is at levels not seen for four decades, the FOMC will be considering the implications of a further tightening of monetary policy given last week’s poor growth data. Figures released last Thursday indicated that Q1 output fell 1.4% on an annualised basis – the first contraction in growth since mid-2020. Additionally, other major organisations such as the IMF and World Bank have revised down their growth forecasts for the world’s largest economy given the conflict in Ukraine, the slowdown in global output, rising costs of energy and commodities and persistent supply chain issues. Subsequently,

The Fed’s interest rate comes two days before Nonfarm payrolls where the general market consensus suggests that the number of new payrolls will hot 380,000 – down from 431,000 on last month’s print.

Sticking with the US economy, in the equities word the Nasdaq had its worst month since 2008, with the tech heavy index falling 13.26% over April.

City AM has more:


BOE Interest Rate Decision
​​​​​The day after the Fed’s interest rate decision, all eyes will be on Threadneedle Street where the market has priced in a 25bp rate hike with roughly a 20% chance of a 50bp hike. A 0.25% increase would bring rates in the UK up to 1%, with this representing the third consecutive rate hike.

At the BoE’s last interest rate decision, their dovish approach caught the market by surprise as eight members of the committee voted to hike rates by 25bp, while Jon Cunliffe voted to keep rates unchanged. Other members including Huw Pill and Andrew Bailey have maintained that rate rises should come in small incremental hikes which has played into market expectations of a 25bp rise, as opposed to a 50bp hike.

The BoE has previously forecast that they expect inflation to rise to around 8% in April, with the possibility of climbing further. However, despite climbing inflation there are concerns about the health of the UK economy going forward, with the economy expected to have the second lowest level of growth amongst the G20 for 2023, behind Russia.

Bloomberg has more:


Oil Update
​​​​​​Crude is currently trading at around a $104dbp after seeing a -0.6% fall. Given the CCPs Covid measures and health of the Chinese economy more generally, the demand for petrol, diesel and aviation fuel is expected to reduce by 20% (year-on-year) in April in the world’s second largest economy. This is the equivalent to roughly 1.2 million barrels a day – which to give some perspective is around half the amount that most analysists are expecting will be cut off from the global supply given the sanctions on Russia. OPEC+ are also not expected to move on their current stance of an increase of 400,000 barrels per day when they meet this week, and thus there will be little downward pressure on oil.

Over in the EU, factional tension is mounting with Hungary and Slovakia expecting to veto a prohibition on the import of Russian oil across the single market. As such, the EU may look to exempt Hungary and Slovakia instead and save giving the impression of conflict between member states. Hungary and Slovakia rely on Russian oil to a far greater extent than many other members and are thus less inclined to adopt an embargo. Indeed, while the former imports 58% of their crude oil from Russia, the latter imports 96%. In contrast, in 2021 Germany received 35% of its crude from Russia, though this has now dropped to 12% following developments in Ukraine.

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Have a great day.


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