All eyes are on the Bank of England today
Calm has been restored to equity markets as the violent swings that were witnessed due to the Reddit-retail investor mania have waned. Volatility in Gamestop – the stock at the centre of the saga – has cool greatly and that has in turn brought the temperature down in the markets.
“Trader’s attention drifted back to topics such as lockdowns, vaccination rates as well as a US stimulus package. The prospect of the Biden administration signing off on a relief package of some shape or form has been the biggest driver of stocks recently,” said David Madden, market analyst at CMC Markets UK, this morning.
President Biden is determined to spend $1.9 trillion on assisting the US economy, but in the near-term he might have to settle for a package worth $618bn – which would have the backing of a group of Republican senators, Madden told City PM this morning.
Decision at noon
Today the Bank of England (BoE) is expected to leave monetary policy on hold. The decision will be announced at 12pm, 30 minutes later the press conference will commence.
Madden expects all nine members of the MPC will vote to leave rates at 0.1 per cent and the asset purchase scheme at £895bn. In November, the BoE upped the stimulus package from £745bn to £895bn but a lot has changed since then, some developments have been negative, while others have been negative.
“Tough restrictions on the UK economy were extended into December, which were subsequently rolled over again in the New Year. Similar measures happened in other European nations,” Madden noted.
Rates
On several occasions in 2020, Andrew Bailey, the BoE chief, mentioned the possibility of introducing negative rates.
“The central banker didn’t seem wedded to the idea but the very mention of the policy sparked concern,” Madden said, pointing out that, last month, Bailey described negative rates as ‘controversial’, which pushed up sterling.
“Dealers took that as a sign that rates are unlikely to be cut below zero. On balance, it appears the UK’s outlook is more positive now than it was in November,” he said.
“We could hear Mr Bailey try and distance himself even further from the idea of negative rates. Sterling has been trending higher recently, earlier this week, the CMC GBP Index hit its highest level since March 2020,” Madden concluded.
At 9.30am (UK time) the UK construction PMI update will be posted, economists are expecting 52.9, down from 54.6 in December.