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  • richard evans

Eyes now on BoE and ECB after FOMC yesterday

Good morning

FOMC did indeed increase the speed of tapering as expected, to be completed by mid-March, while the dot plot now suggests three rate rises next year, as well as three in 2023 and two in 2024. Powell said the economy would overcome the Omicron variant. USD initially pushed higher but despite Powells hawkishness, he just wasn;t quite as hawkish as some had hoped, and the dollar has actually weakened since the announcement. The Fed will love that, turning more hawkish, tightening bias, but no major USD upside. Perhaps some had been hoping for a rate rise while tapering was taking place, this has pretty much been discounted. There is an FOMC meeting on 16th March, tapering should be done by then so it seems the perfect time to announce a rate rise.

With FOMC out of the way, we look forward to several other central banks today, including SNB, BoE, ECB and BoJ. BoE is a bit uncertain and pretty well balanced. We know there had been thinking they would raise rates at the last meeting, that didn’t happen and if anything things look slightly bleaker now, so a rate rise today would be really quite a surprise to the markets. The sharp rise in inflation though could make the decision difficult as they weigh up inflation versus Omicron.

ECB is an odd one, it has been a long time since we saw a hawkish ECB and I’m not expecting much today although it is likely Lagarde will announce the end of its PEPP by March. on asset purchases, particularly any thoughts of tapering.

RBAs Lowe was less hawkish than some thought when he spoke last night, he made it cledar RBA still see no need for a rate rise in 2022 and said that tapering did not change this outlook. AUD dipped a little but found support on surprisingly better than expected Aussie employment numbers, AUDUSD initially moved from 0.7155 to 0.7180, although then dropped to 0.7150 before climbing back to 01.7180 this morning, helped by the generally weaker USD.

UK PM Boris Johnson Covid as UK daily cases hit record high. The fast spread of Omicron is clearly a major area of concern. A key question now is whether the high case numbers then translate into higher hospitalisations. We are already seeing a slight increase in hospital admissions and as Chris Whitty said yesterday, if hospitalisations are halved but case numbers are doubled, we have the same high number of people requiring hospital treatment. In theory we could have the whole population mildly ill at home, but if the NHS is getting overrun it is obviously a major issue. Whitty used terms like ‘substantial, significant and alarming’. He certainly made it very clear he is concerned that we are all expecting Omicron to be less severe, he is not convinced.

One chart displayed yesterday showed the number of vaccinated and unvaccinated people in hospital. It is clear that in each age group the number of unvaccinated people in hospital is some four to six times higher than vaccinated. We know vaccinations are not 100% effective but they clearly serve a good purpose. The issue with Omicron is that vaccines are less effective, therefore it is likely more vaccinated people will unfortunately end up in hospital. This does not mean vaccines are not worthwhile, I’m not sure if any readers are anti-vaxers but I’ll happily discuss the issue if you are.

So far we are not seeing tighter restrictions ahead of Christmas but I have to say if case numbers continue to rise as sharply as they have done, I cannot see how we will be able to carry on without some sort of lockdown.

In terms of the markets, once we get through today and see the UKs retail sales data early tomorrow morning, I reckon we’ll be in a good position to sit back and wait for Christmas. Don’t get too comfortable just yet though.

- 08.30 SNB rate announcement

- 09.00 EU markit manufacturing, services PMI

- 09.00 SNB press conference

- 09.30 UK markit manufacturing, services PMI

- 10.00 EU trade balance

- 12.00 BoE rate announcement

- 12.45 ECB rate announcement

- 13.30 US housing starts, philly fed survey, initial jobless claims

- 13.30 ECB press conference

- 14.105 US industrial production

- 14.45 US markit manufacturing, services PMI

- 03.00 BoJ rate announcement

- 06.00 BoJ press conference

- 07.00 UK retail sales

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