After the initial reaction on the international stock markets to the more restrictive stance of the Federal Reserve was surprisingly positive, interest rate concerns put pressure on technology stocks in particular on the New York Stock Exchange yesterday. While the Dow Jones Industrial and the broad S&P 500 still held up quite well, the Nasdaq indices posted losses of more than two percent. In Asia, some of the major stock indices also trended in negative territory at the end of the week. For example, the Tokyo Stock Exchange lost almost two percent today.
Britain's central bank raised its key interest rate by 15 basis points to +0.25%. This, after the British inflation rate reached +5.1% in November, the highest level in ten years. The decision was made with a clear majority of 8:1 vote. Whether further interest rate hikes will follow remains unclear at present, as the ongoing pandemic is causing a high degree of uncertainty. The mood of British companies deteriorated significantly in December. The IHS Markit purchasing managers' index fell sharply by 4.4 points to 53.2, its lowest level in ten months.
As widely expected, the Bank of Japan left its monetary policy unchanged and confirmed its short-term interest rate target at -0.1%, and the target for ten-year bond yields at 0%. However, Japan's central bank is adjusting its pandemic financial assistance. While scaling back corporate bond purchases to support large companies, it extended the aid program for smaller firms by six months.
As expected, the European Central Bank (ECB) is letting its Pandemic Emergency Purchase Program expire next year. Bond purchases, however, remain a component of ECB policy. For example, the central bank will increase the purchase volume of the APP program from the current EUR 20 billion per month to EUR 40 billion in the second quarter of 2022. In Q3, bonds are to be purchased in the amount of EUR 30 billion per month and reduced again to EUR 20 billion from October 2022. The ECB kept the key interest rate at the record low of zero percent. In its forecasts presented yesterday, the ECB expects inflation to be significantly higher in some cases this year and next. The inflation rate should be +2.6% this year (previous forecast +2.2%) and rise to +3.2% next year (previously +1.7%). In 2023, however, the ECB then expects the inflation rate to fall to +1.8% (previously +1.5%). The last inflation rate in the euro zone in November was +4.9% – in Germany even +5.2%.
Meanwhile, corporate sentiment in the eurozone deteriorated significantly at the end of the year against the backdrop of the pandemic. The Purchasing Managers' Index fell to 53.4 points in December from 55.4 points in the previous month – the lowest level in nine months. According to IHS Markit, sentiment in the service sector deteriorated particularly sharply.
As expected, the Swiss National Bank (SNB) is sticking to its expansionary monetary policy and maintaining its negative interest rate of -0.75%. Although the SNB revised its growth and inflation forecast slightly upward, the continued strength of the franc is keeping the central bank virtually on the ground and a turnaround in interest rates is not yet in sight. The SNB expects a further recovery of the Swiss economy and slightly higher inflation in 2022 of +0.6% (previously +0.4%).
The Norwegian central bank raised its key interest rate for the second time since the start of the corona crisis by 25 basis points to +0.5%. The move had been expected in the markets. Norges Bank also held out the prospect of further rate hikes.
Although Turkey has an inflation rate of around 21%, the central bank again eased its key interest rate by another 100 basis points to 14.0%. At the same time, however, the Turkish central bank held out the prospect of an end to key rate cuts for the time being.
|08:00||GE||Producer Prices (November, y/y)||+18.4%|
|09:00||AUT||Consumer Prices (November, y/y)||+4.1%|
|10:00||GE||Ifo Business Climate (December)||+95.5|
|11:00||EZ||Consumer Prices (November, m/m)||+0.8%|
|11:00||EZ||Consumer Prices (November, y/y)||+4.9%|
|11:00||EZ||Core Consumer Prices (November, y/y)||+2.6%|
|11:30||RUS||Bank of Russia monetary policy announcement||+7.5%|
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Source: LGT Bank (Switzerland) Ltd.
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