The FTSE and other European indices have moved very little on opening as the markets brace for three key central bank meetings.
The Bank of England, the European Central Bank and the Central Bank of Turkey are all in session today. While the markets have a pretty good idea of what to expect from the BoE and the ECB, Turkey’s central bank’s next move is more of a guess - although the bank is likely to step in to tame soaring inflation.
Central banks galore
As the BoE’s Monetary Policy Committee concludes today, the Bank is widely expected to leave rates intact despite inflationary pressures in the UK economy.
The domestic political situation remains unstable with Prime Minister Theresa May’s leadership possibly to be called into question shortly and a Brexit deal seemingly still out of reach despite looming deadlines.
The instability continues to outweigh the fact that the UK inflation is currently at 2.75%, or above the government’s long term target of 2%, but it will be telling to see how the 9-strong committee votes on the need to increase rates as this will set the tone for rate decisions later this year.
Currencies in hibernation
The pound has ground to a standstill ahead of the BOE meeting and is trading unchanged against the dollar. The euro is also in near-hibernation mode, weaker against the dollar by 0.04% and marginally weaker against sterling by 0.02%.
The ECB is also expected to signal caution, as central bankers mull fresh risks in the shape of mounting Italian debt and soaring inflation in Turkey. A number of European banks are exposed to Turkish debt and a further plunge in the lira, like the one seen at the end of August, would not bode well for them.
Given previous comments made by the Bank in June the ECB is likely to cautiously phase out its support programme, by cutting in half its monthly bond-purchase programme from the current €30 billion, and eventually stopping it completely by the end of the year.
Rates, on the other hand, are unlikely to be raised until at least the middle of 2019.