The Market Monitor Minding the Nation's Business
The United States needs to show more positive economic performance, otherwise the Federal Reserve (the Fed) has no choice but to hike rates in the near term following the rate cut announcement by the Bank of England (BOE) last Thursday, a local bank said in a report.
In a market research, the Ayala-led Bank of the Philippine Islands (BPI) said BOE met markets’ expectations after it slashed rates by 25 basis points to record-low 0.25 percent to address the impact of a UK exit from the European regional block.
BOE even surprised the markets after it announced a new Term Funding Scheme to ensure that banks pass the rate cut to their customers, the purchase of 10 billion pound-worth of UK corporate bonds, and an expansion by 60 billion pound of the central bank’s asset purchase scheme for government bonds.
It also cut its 2.3 UK growth forecast for 2017 and 2018 to 0.8 percent and 1.8 percent, respectively.
The research note said “the aggressiveness and decisiveness of the action would mean that the Fed may be hard pressed to enact its second rate hike unless US domestic numbers come in much better than projected.”
In recent weeks, economic reports from the US has been below expectations and these include the July ISM non-manufacturing data of 55.5 against 55.9 forecast, below expected 1.2 percent gross domestic product (GDP) growth based on advance estimate and the 0.1 percent rise in wholesale inventories last May from 0.2 percent projection.
The Fed hiked key rates in December 2015 to 0.25 to 0.50 percent from zero to 0.25, the first increase in almost a decade, after signs of sustained growth in the world’s largest economy further firmed up.
It was earlier expected to announce four interest-rate increases this year, but this projection has been changed to two and now to only one as economic data falters.
The US is set to release Friday the jobs report for July and consensus expectations is an increase of 180,000 jobs, lower than the 287,000 last June but higher than the 11,000 last May.
BPI forecasts a 187,000 increase. The research note added that “emerging markets (EMs) continue to benefit until the Fed starts barking again as data comes in and markets remember that the US recovery may have enough juice to warrant a hike.”