Today one of the main market events will be the BoE meeting. No changes are expected in monetary policy, interest rates, or the asset purchase program, but it’s all about what will be said.
The markets’ attention will be on the bias of the speeches and whether it will be more similar to that of the Fed (slight hawkish twist) or that of the ECB (clearly dovish or accommodative).
In favor of the first option, we can count the British economy, which is close to reaching its level recorded before the pandemic crisis. U.K. inflation reached 2.1% in May, exceeding the 2% target. In addition, the BoE Monetary Policy Committee explicitly referred to a possible start of the "tapering" process, referring to the gradual reduction of the bond purchase program.
However, it is also true that growth risks persist, as evidenced by the four-week delay in the schedule for the reopening of the U.K. economy due to the worrying advance in infections of new variants of the virus. It could also happen that they will be more tolerant to inflationary spikes, considering the Fed’s position. The market discounts the first-rate hike in the United Kingdom in 2023. Another hawkish speech could cause this date to be pushed forward, offering additional support for the British pound.
At the moment, the British currency continues within an upward trend. EUR/GBP maintains its way down below the 100-day SMA line, failing to overcome previous upward corrections and heading towards the main support zone located at 0.8478.
The intrinsic weakness of the euro contributes to this movement due to the ECB’s decision to continue with its expansionary monetary policy while waiting for the recovery of the economy to be solid and to achieve the inflation target of 2%.
The German economic IFO business climate figure showed an advance to 101.8 vs 99.2 the previous month, a positive sign of recovery for the country's economy after the last month's setback. However, it doesn't seem good enough for the ECB to think about changing its expansionary monetary policy.
The U.S. Indices
North American stock indices continue their slow upward path despite the change in Fed's bias and inflation data exceeding all expectations.
The Tech100 index reaches historical highs day by day without showing signs of a change in trend or exhaustion of the movement. In this sense, the daily RSI is still below overbought levels.
Sources: Bloomberg, reuters.com.
The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.
As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).
The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.
The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.
JME Financial Services (Pty) Ltd trading as ZA.CAPEX.COM acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via ZA.CAPEX.COM, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15. Magnasale Trading Ltd is the principal to the CFD purchased by investors