- Eyes turn to the Fed’s interest rate decision later amid tariff turmoil.
- Bank of Japan keeps interest rates on hold as policymakers exercise caution.
- Bank of England rate setters expected to sit on their hands, but a cut can’t be ruled out.
- Oil prices dip back, amid small steps of progress on Ukraine ceasefire talks
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Caution is set to be the name of the game today as investors assess crunch central bank decisions on interest rates amid global tariff turmoil. After gains yesterday, London’s FTSE 100 is on the back foot in early trade as a wait-and-see mood swirls. But overall, the more positive sentiment towards UK and other European stocks is expected to continue while equity investors seek safer havens as Trump rips up international agreements and shreds relations with formerly steadfast trading partners.
Nervousness pulsing through Wall Street looks set to bed in, as investors fret about the prospects of the US entering recession, amid unpredictable policymaking from the White House. After another shift lower on Tuesday, the S&P 500 is set to open flat, amid high caution ahead of the crunch central bank decision. The Fed is widely expected to keep interest rates on hold, but investors will be hanging on Jerome Powell’s words about future rate cuts. The tide has turned, with even the prospect of lowering borrowing costs unlikely to provide much solace given that they would be seen as indicating increasing weakness in the US economy. Nevertheless, a more neutral tone from the Fed chair might be a stabilising force, given the falls of recent weeks.
The Bank of Japan has stuck to the script and kept interest rates on hold. They will remain 0.5% following the third increase in January. Caution appears to be the name of the game right now for policymakers, given rising economic risks around the world due to US trade policy.
Eyes will swivel to the Bank of England decision tomorrow, with policymakers also expected to sit on their hands and wait for more data amid turmoil for the global economy before cutting interest rates. Inflation is above target at 3% and is expected to creep even higher before falling later this year. However, a cut still can’t be completely ruled out, given how growth conditions have deteriorated. with former ultra-hawk Catherine Mann having already made a sharp turn at the last meeting, and voting for a super-size rate reduction, more policymakers may follow her lead and join Swati Dhingra in the dove camp. There are concerns about the growth weakening further given the tariffs upending global trade. Policymakers look further ahead and try and assess how economic forces will impact consumer prices down the line. With, the UK economy contracting in January, and growth downgrades posted by the OECD (Organisation of Economic Cooperation and Development) downwards pressure on prices may well filter through sooner rather than later.
Brent crude is trading slightly lower amid small steps of progress in talks between Putin and Trump over Ukraine. Although the US President failed to broker a ceasefire, Russia has agreed to stop attacks on energy networks, which has been seen as a positive move. This has led to expectations Russian oil flows could be increased at a nearer point in the future if a further deal is reached. But given that attacks on some energy facilities appear to have resumed, any longer-lasting deal still seems very far off. Concerns about the slowing US economy and the impact of tariffs on global growth are also expected to lower demand for energy which is putting downwards pressure on crude.’’
