The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The economic calendar is jammed packed with important events and releases this week. The release of central bank rate decision remains the central theme again this week.

Bank of England

 The Bank of England rate decision remains the key event on the economic calendar this week, especially after the ECB hiked rates and remained hawkish, while the Fed did the opposite.

In terms of market pricing, a total of 125 basis points is currently expected. Markets largely a 25-basis point hike this week priced in, while there is a chance of a 50 basis points.

64/64 economists surveyed by Reuters expect the BoE to raise rates by another 25bps, taking the Base Rate to 4.75%. Many analysts suggest that this looks a bit aggressive with 50bps further hikes judged to currently be the base case.

The expectation for the Bank to deliver further hikes comes from the April inflation release which saw the year-on-year CPI fall to 8.7% from 10.1%, but it did not meet market expectations for a bigger decline.

With a June hike almost certain, attention will be on any guidance provided by the Bank. further tightening in monetary policy would be the most likely outcome at this stage. The pound also looks to be pricing in more hikes.

Turkish Central Bank

Despite the domestic currency going into freefall against the US dollar and the euro there are currently no expectations for what the CBRT will opt to do anything this week. Please note this is the first decision under new, and also the first female Governor Hafize Gaye Erkan.

JP Morgan is expecting the CBRT to hike rates from the current 8.5% to 22% on June 22, and the bank expects the rate to be at 30% by year-end, with risks to the upside.

Goldman Sachs meanwhile said “fully orthodox” policymakers would raise rates to 40%. Personally, I am expecting that the central bank may need to hike rates this week.