Morning Brief – BoE In Focus

Today’s Bank of England rate decision is set to be the main focus for market watchers, with the action from the UK central bank expected to be the largest rate increase in 40 years.

The main event is largely taking a backseat to UK political theatre as Rishi Sunak and Liz Trust do battle for the top job in UK politics. The pound could remain in the doldrums until the verdict is known.

Still, traders’ thoughts today will be with the scale of the hike expected from the BOE and also the guidance on just how many rate hikes are coming down the line to fight double-digit inflation.

Should we see a 50-basis point hike and more hawkish commentary towards further aggressive rate action then it is like cable could jump and gain traction.

The FTSE100 is a tough one. Higher rates bring bank profits, but they also hit UK home sales. I think the leading UK index could take the decision in its stride decide.

OPEC’s latest decision to marginally increase output is hammering oil prices. Yesterday we saw a huge move down in crude and Brent oil, and an even bigger move up in Natural Gas prices.

Note that no real news was attributed to Natural Gas moving higher, so trying to fathom why the move took place in the first place is very difficult at this stage.

Should we continue to see oil prices trade below $90.00 and even nearer to $80.00 over the coming weeks then this would be a massive help to central banks.

With the war in Ukraine, it remains to be seen whether oil prices will stay this low or indeed whether they will scoop up on the dip. I suspect the former.

In terms of the foreign exchange markets, we are seeing really muted action ahead of the BoE. The euro is currently having a quiet week after peaking on Monday.

The Nasdaq stage a huge upside breakout yesterday. Apple sales came in strong and also many other tech companies in the Nasdaq did better than most expected.

Much of the crypto market looks to the Nasdaq for guidance, especially Bitcoin. The top coin failed to break out yesterday as the Nasdaq posted one of its strongest days of the year.