Bank of England raises rateAug 10, 2022
- DOW JONES32’774
- PETROLE BRUT WTI90
In Switzerland Despite a drop from 59.1 points to 58 points in July, the manufacturing PMI still reflects a good level of industrial activity. Inflation stabilised in July. Prices rose by 3.4% year-on-year and by 2% excluding energy and food prices.
The main markets started last week with the momentum of July. However, they lost some ground on Friday after the release of the US employment figures. While these very good figures reassured investors about US growth, they also reinforced their fears that the Federal Reserve would be very aggressive at its next meeting. After various warnings, the labour market returned to its pre-pandemic level. The unemployment rate fell by 0.1% to 3.5%, the same as in February 2020, when it was at its lowest in 50 years.
The Bank of England raised its main policy rate to 1.75% almost which is the biggest rate hike in 27 years. The BOE made the decision in light of persistent high inflation, which is expected to continue in the coming months. The institute believes that inflation has not yet reached its peak. It stood at 9.4% in June but is expected to rise to 13.1% in the fourth quarter. Far from boosting the GBP the British currency lost a penny and a half against the dollar following the BOE's statements. The BOE expects the economy to contract by 1.5% in 2023 and 0.25% in 2024. It is the first central bank to say it expects a recession.
In Germany factory orders fell by 0.4% in June on a monthly basis and by 9% on a yearly basis. These figures suggest a slowdown in activity, as the PMI figures had suggested. The German construction PMI came out sharply lower at 43.7 compared to 45.9 in the previous month and stands at a 17 month low. New orders are down sharply as prices soar and economic uncertainties grow. Industry expectations are at their lowest for 20 years.
US Dollar weakened slightly ahead of the release of US inflation figures in the afternoon. The expectation is for the consumer price index to fall to 8.7% in July year-on-year from 9.1% in June. EUR continued to rise against the US dollar. This movement also allowed the EUR/CHF pair to move away from its low reached at the end of July.
Europe's energy security has suffered a further shock after the flow of Russian crude oil through Ukraine to Hungary, Slovakia and the Czech Republic was cut off as sanctions prevented the payment of a transit tax. On the other hand, a possible return of Iranian crude oil to the market has weighed on prices. This morning, Crude was trading at $90.20 a barrel and Brent at $96.10 a barrel.
The 2-year US Treasury yield yesterday exceeded the 10-year yield by almost 50 basis points, a milestone not seen since August 2000, and inversed the curve. US 10 year at 2.78% and 10y Germany at 0.92%
Yesterday, with the exception of London, which rose very slightly, European and US indices closed in the red on the event of the publication of the US consumer price index. NASDAQ 12’493, Gow 32’774, SP500 4’122, Eurostoxx50 at 3’705 and Swiss market at 11’099.