Week Ahead: Bank of England, RBA and RBNZ Interest Rate Decisions in Focus

Week Ahead: Bank of England, RBA and RBNZ Interest Rate Decisions in Focus

Written by: Phil Evans

Following the Fed’s marginally hawkish shift last week, picking up the central bank mantle in the coming days are the Bank of England, Reserve Bank of Australia and the Reserve Bank of New Zealand.

bank of england

Bank of England

Is the Bank of England mulling another interest rate hike sooner rather than later? While there is no expectation for a change in policy this week, there have been murmurings around the monetary policy committee having more leeway to raise rates faster than previously expected.

Fourth quarter growth, which defied expectations to remain robust, has some economists thinking the BoE will move to increase rates in the summer.

Meanwhile, the BoE itself is starting to think along more conventional lines as it focuses on a return to wage growth. And while inflation resulting for the depreciation in sterling is becoming less important, rising oil prices are pushing up input costs and may keep inflation at the top end of target in 2018. “The focus is increasingly on returning inflation sustainably to target over an appropriate horizon,” governor Mark Carney said last week. Ultimately, if oil prices keep the upwards pressure on inflation, the BoE’s hand could be forced.

The BoE is likely to remain on the fence but we could just see a slightly hawkish undertone that keeps sterling bulls interested. The announcement is due at midday on Thursday.

RBA, RBNZ

Ahead of the BoE, the Reserve Bank of Australia (RBA) is in action on Tuesday. No change is expected at this meeting after the latest inflation data was a little below expectations.

The rally in the Australian dollar has already exerted a degree of financial tightening and this may prevent the RBA from moving as swiftly as predicted in 2018. As with a range of G10 currencies, the Aussie is at its strongest in more than three years against its US counterpart, and this has the market rowing back a touch on previous expectations for two rate hikes in 2018.

Meanwhile in New Zealand, we have similar pressures. New Zealand CPI came in at 1.6% in Q4 2017 versus 1.9% expected, which has dialled back expectations for a hike. Markets think the RBNZ probably will raise rates this year, but the softer inflation data has undoubtedly killed off the near-term expectations. The RBNZ announcement is slated for 20:00 on Wednesday (UK time).

Services PMIs

Service sector data is due Monday. Following the incredibly bullish manufacturing numbers, we may expect more ‘Euroboom’, while in Britain the numbers are especially important for the pound as services account for roughly 80% of output.

The last report jumped to 54.2 in December compared with a 53.8 reading in November. This was ahead of expectations and tallied with GDP figures that showed a more resilient performance by the UK economy in Q4. Business activity was up but new order growth slipped to a 16-month low, while input price inflation rose to its highest in three-months. As with the latest manufacturing PMI last week, there are signs that higher oil prices will keep inflation at the higher end of expectations in 2018, which could force the Bank of England’s hand.

Snap Earnings

Fanfare counts for precious little and Snap is finding out that ‘buzz’ and ‘hype’ and ‘influence’ counts for absolutely nothing if can’t turn it into earnings. The net loss for the nine months ended September is more than $3bn – not even Tesla is burning cash this quick. IF it doesn’t turn that into significant increase in revenues and users soon, investors could give up hope.
Snap is coming off the back of a bad revenue miss – Q3 revenues came in at $207.9 million versus $236.9 million expected, while average revenue per user was $1.17 versus $1.30 expected.

Daily active users (DAU) – one of the most important metrics –grew from 153 million in Q3 2016 to 178 million in Q3 2017. Although a 17% year-over-year increase, this was also short of expectations.

 

Source: ETX Capital

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