Daily Market Report 10/01/13

Rate decision day: attentions turn to future strategies

Today the ECB and the Bank of England will both announce their interest rate decisions. Though neither central bank is expected to cut the rates, investors will pay close attention to what may be intimated in the subsequent press conferences.

As both regions struggle economically, the euro zone in recession and the UK threatened by one, the topic of quantitative easing is likely to be high on the agenda. With the UK’s Funding for Lending Scheme currently in operation, officials may wait to see its effect on the loosening of monetary conditions before turning to further QE.

In Europe the need for either a rate cut, or further bond purchases, may have been reduced as reports showed that confidence was creeping up. Though confidence takes time to trickle down to tangible economic improvement, ECB officials may be wary of making unnecessary cuts, threatening inflation when for the short term at least, the situation does not require them.

Should both central banks allude to future monetary easing in their press conferences, the euro and sterling could have different reactions. Future easing in the UK would likely mean a selling off of pounds as the money supply gets diluted, whilst although the same scenario, we have seen that anything which promotes the euro’s economic improvement can cause strength in the single currency, giving the two converse trajectories for the day.

With the rate decisions taking precedent, across the pond the US announce the unemployment figure, which is expected to marginally drop. Unless the figure is drastically different to analyst expectations, focus for the day will be looking to Mario Draghi and Mervyn King for their announcements.

 

Today’s Key Announcements:
  • 07.45am – EUR – French Industrial Production m/m: large increase to 0.5%
  • 12.00pm – GBP – Asset Purchase Facility: to remain at 375b
  • 12.00pm – GBP – Official Bank Rate: expected to remain at 0.5%
  • Tentative – GBP – MPC Rate Statement
  • 12.45pm – EUR – Minimum Bid Rate: expected to remain at 0.75%
  • 13.30pm – EUR – ECB Press Conference
  • 13.30pm – USD – Unemployment Claims: expected to drop to 361k