KUALA LUMPUR: The FBM KLCI erased earlier gains by midday as investors continued to take profit following a six-day rally in the closing days of 2024. At the midday break, the benchmark index was down 2.43 points to 1,630.44. The broader market, however, was positive with 506 gainers compared to 476 decliners, suggesting that investors had turned their attention to picking up bargains among the lower liners. Turnover was 2.4 billion shares valued at RM1.48bil. Investors continue to tread cautiously amid a suggestion by the Federal Reserve that there will be fewer rate cuts this year than initially projected, while the incoming Trump administration will fuel inflation with its growth policies. In China, the Shanghai Composite index dropped 0.46% to 3,247 while Hong Kong's Hang Seng gained 0.87% to 19,794. Singapore's Straits Times fell 1.71% to 3,799. Japan's stock exchange remained closed for a national holiday. On Bursa Malaysia, laggards included Nestle down ...
The Bank of England (BOE) is expected to warn investors not to anticipate a series of back-to-back interest rate cuts if its policymakers proceed with a first reduction in a close decision this week.
A Bloomberg survey indicates that most economists expect the UK central bank to reduce rates for the first time since the start of the pandemic on August 1. Many predict a close vote, with investors giving a 45% chance of a quarter-point reduction at this meeting.
Unlike previous easing cycles, the UK economy is forecast to gain momentum this year and next, posing a risk of inflationary pressures. BOE Governor Andrew Bailey’s silence since May has left analysts uncertain about how the nine-member Monetary Policy Committee (MPC) will balance concerns about wages and prices against the risk of stifling growth with the highest rates in 16 years.
“The BOE is unlikely to give clear guidance on the future rate path or signal the start of a sustained cutting cycle,” said Sonali Punhani, UK economist at Bank of America. “It would keep the focus on the data to determine the timing of the next move.”
Even if the BOE cuts rates at this meeting, neither markets nor analysts expect a rapid reduction in the benchmark rate. Investors have priced in only two quarter-point cuts this year, with the central bank noting that a loosening on Thursday would still leave rates in restrictive territory.
The MPC appears divided, with some economists predicting a 5-to-4 split for a cut. Officials like chief economist Huw Pill, Jonathan Haskel, and Catherine Mann have highlighted persistent price pressures, especially in services inflation and wage growth. New inflation forecasts will accompany the decision.
The BOE’s cautious stance on future cuts would echo the European Central Bank’s (ECB) approach, which left its deposit rate unchanged earlier this month after beginning to ease policy in June. Traders expect another rate cut in the eurozone in September.
Predicting the BOE’s decision on Thursday has been particularly challenging. A rate cut could reverse the pound’s recent rally.
The decision confidence has been undermined by key swing voters on the MPC remaining silent, largely due to a communication blackout during the election campaign.
Governor Bailey has not spoken publicly since before the election was called in May, except for a brief statement with last month’s decision. Some economists focus on June meeting minutes, which indicated that the decision not to cut rates then was “finely balanced” for some MPC members.
“The BOE has left markets in the dark,” said Stefan Koopman, senior macro strategist at Rabobank. He noted that policymakers could have provided more guidance ahead of a potential first cut.
The conflicting data and lack of BOE communication have left money-market pricing for the meeting uncertain. Traders were pricing in around 11 basis points of easing, indicating a roughly even split on the likelihood of a cut.
The pound’s strong performance this year could be at risk if an interest rate reduction occurs. The pound is the best-performing major currency so far this year, largely due to expectations that the BOE would maintain high rates. The ECB has already started lowering its deposit rate, and the US Federal Reserve is forecast to cut rates in September.
“The August meeting is likely to be a significant volatility event over which traders must manage risk,” said Michael Brown, a strategist at Pepperstone. “Much will hinge on both the vote split and policy guidance, particularly whether further rate reductions are explicitly mentioned.”
Key Takeaways:
- BOE may warn against expecting a series of rate cuts.
- First rate reduction since the pandemic is expected on August 1.
- UK economy’s expected momentum poses inflation risks.
- Governor Bailey’s silence adds uncertainty to the decision.
- MPC appears divided, with some predicting a close vote.
- Investors do not expect rapid rate reductions even if a cut occurs.
- The pound’s strong performance this year could be affected by a rate cut.
- Market pricing for the decision remains uncertain.
- The August meeting is expected to be a significant volatility event.
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