Economists at TD Securities discuss the Bank of England Interest Rate Decision and its implications for the GBP/USD pair.
Hawkish Hold (15%)
Most of the Policy Summary is unchanged from February. But echoing Pill’s recent comments, it adds a line that the majority of the MPC still thinks that rate cuts remain ‘some way off’, effectively ruling out a May cut, and putting June into serious question. GBP/USD +0.50%.
Neutral Hold (65%)
The MPC leaves almost all key guidance unchanged from February’s Policy Summary, especially ‘policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates’. There is a very slight marking to market to acknowledge softer underlying inflation data owing to recent downside surprises on inflation, wages, and growth. GBP/USD -0.15%.
Dovish Hold (20%)
The MPC downgrades the February Policy Summary element about underlying inflation to something along the lines of ‘key indicators of inflation persistence have improved in recent months’. Elsewhere, language around policy remaining “restrictive for an extended period of time’ is also adjusted to suggest that the MPC is starting to think more seriously about rate cuts. This scenario effectively is a signal from the MPC that May is a live meeting. Another scenario that drives a similar message would be to see a core Deputy Governor (e.g. Broadbent) vote for a cut. GBP/USD -0.80%.
Australian Stock Market FAQs
Stock markets in Australia are managed by the Australian Securities Exchange (ASX), headquartered in Sydney. The main indices are the S&P/ASX 200 and the S&P/ASX 300, which track the performance of the 200 and 300 largest stocks by market capitalization listed on the exchange, respectively. The S&P/ASX 200 was launched in April 2000, and it is rebalanced every quarter.
Almost half of the index belongs to the financial sector, with major banks like the Commonwealth Bank of Australia, Westpac or National Australia Bank. The so-called materials sector is also relevant – comprising almost 20% of the weighting in the index – with mining giants such as BHP Group or Rio Tinto. Other important sectors are biotechnology, real estate, consumer staples and industrials.
Many different factors drive the ASX 200, but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual earnings reports the main factor behind its performance. Commodity prices can also affect the index given its significant share of mining companies. Macroeconomic data such as Gross Domestic Product (GDP) growth, inflation, or unemployment data from Australia is also important as they are indicators of the health of the country’s economy and thus the profitability of its largest companies. Global economic conditions may also play a role, particularly from China, as the Asian country is Australia’s largest trading partner.
The level of interest rates in Australia, set by the Reserve Bank of Australia (RBA), also influences the ASX 200 and ASX 300 indexes as it affects the cost of credit, on which many firms are heavily reliant. Generally, when the RBA cuts interest rates (or signals it is going to do it), it is positive for the Australian stock market as it means a lower cost of credit for companies and higher economic growth ahead, likely boosting sales. On the contrary, if the RBA signals that it will increase interest rates, this tends to weigh on the index. As always, there is a caveat: banks. Financial institutions tend to benefit from higher interest rates because they earn more from lending to other businesses, thus boosting their overall income.
