Week Commencing 30th October 2023

Interest Rate Decisions


Major Indices

Index Performance
S&P 500 +5.85%
DOW Jones +3.37%
NASDAQ +6.48%
FTSE 100 +1.73%
DAX +3.42%
Nikkei 225 +3.09%
Shangai Composite +0.43%

World Sector Performance

FED Interest Rate Decision

The FED held interest rates unchanged on Wednesday, with the policy rate in the 5.25 - 5.5% range. There were some words of caution and central bank officials would be willing to further increase rates in the future if progress stalled. Their focus now before the next decision in December turns to job and price data. Powell acknowledged that the economy is being impacted by high treasury yield bonds, mortgate rates and financing costs, so will follow this closely to gain a better understanding of the situation. Upon this rate decision, US stocks were up, the DXY remained flat, treasury yields fell and traders of short-term US interest rates grew in cofidence that the FED was done raising rates.

Bank of England Interest Rate Decision

The BoE governor Andrew Bailey hinted that interest rates will remain high until 2025, with forecasts that inflation will fall to 2% in that year. This came after the news that interest rates would be held at 5.25%. Strong pay growth and labour market, stubborn services inflation and the ongoing war in Israel seem to be the biggest threats to inflation right now. The figure below is a reminder of the UKs inflation, last updated in September and next due on the 16th of November.

Surge in Gold Prices

Geopolitical turmoil has caused investors to flee to Gold as a 'safe haven' in these times of uncertainty. The region is at risk of escalating conflict and Fed Chair Powell has said that the war poses 'important risks to global economic activity'. Gold is already deemed as a hedge against inflation, and hence tends to move inversely to the US real treasury yields. This relationship has been tested recently however, and appears to have broken down as the graph below shows.

Gold ($ per ounce) - TradingView

Bank of Japan Interest Rate Decision

The BoJ left interest rates alone at -0.1%. Following from the 10-year government bond cap around zero percent, bond yield control was again tweaked as they re-defined a 1% upper bound, no longer forecfully capping it here. They will however step in to avoid it moving sharply above that level. Rising global bond yields and inflation continue to pressure the BoJ with their bond control. Japan remains an outlier against the tight monetary policies and high interest rates seen in other areas of the world including the UK, Eurozone, and US. The yen is at decades low against the US dollar, threatening to cause prolongued inflation in Japan, after chronic deflation led the BoJ to these unusually low interest rates despite YoY inflation being 3%.

Japan Inflation YoY since 1960 (Trading Economics)

Other Headlines

Coming Up Next Week...