Week ahead: Market holds breath for busy central bank week
Markets are preparing themselves for one of the busiest weeks of the calendar, with the Federal Reserve, the Bank of England, and the Bank of Japan all deciding the path for interest rates in their country over the next five days.
Meanwhile, Amazon, Apple, BP, and Microsoft, along with a raft of other companies, are reporting results throughout the week.
“This is the peak of the summer, and it feels like it will be the peak week for financial markets,” said Kathleen Brooks, research director at XTB.
The constant announcement and uncertainty could lead to increased volatility throughout the next five days, as markets continue to grapple with the poor tech company earnings reports that emerged from Tesla and Alphabet last week.
However, this could be a boon for markets, though, as reassurance from central banks that a soft landing has emerged and further rate cuts are on the way should push up sentiment and especially benefit cyclical and value stocks.
The big question for UK investors will be the Bank of England (BoE), as markets are only pricing in a 44 per cent chance of a rate cut, suggesting the decision could rest on a knife edge.
“The market has been reluctant to price in rate cuts for a few reasons: residual inflation risks, especially service price inflation, some hawkish members of the BoE coming out and saying they won’t vote to cut rates at this meeting, and the chance of an upgrade to the BoE growth forecasts for this year and next,” said Brooks.
“The latter point is worth noting, it would be odd for the BoE to cut rates at the same time as they raise their growth forecasts, and due to this we think that they won’t cut rates at this week’s meeting.”