00:00We're getting set for a big week of central bank action. The Fed, the BOJ and the Bank of England
00:05all set to deliver rate decisions as higher energy prices fuel inflation concerns. Let's bring in
00:10Bloomberg MLive's strategist Mark Cranfield for more. Mark, let's start then with the Fed. How
00:16much does Friday's inflation print change the setup for this week's meeting?
00:22I think for those who hadn't already expected the Federal Reserve to raise by 25, it pretty much
00:28sealed the deal for them. You saw a whole slew of the sell side firms changing their forecast after
00:35that CPI number. They now fully expect to have a rate hike this week. And the Fed now is in
00:41an
00:41almost impossible situation because their expectations are so high, because of the way
00:46that Kevin Walsh spoke at the Jackson Hole conference. If they do not go ahead with an interest rate hike
00:52this week, it will probably be more damaging to the market than if they actually do one. So with it
00:57mostly priced in, the course of action we would now expect is they go ahead and they do it.
01:03The key part for investors, obviously, is going to be the press conference from Kevin Walsh and how
01:08he handles the idea that it is not a one and done situation. He would probably prefer that he gives
01:14as little guidance as possible, but that's going to be very difficult because he's going to be
01:19bombarded with questions saying, well, do you expect more rate hikes down the road considering that
01:25oil prices are extremely high? There's no end in sight to the conflict in the Middle East.
01:29And so where's the Fed going to go? And then you would have fresh Fed speakers a few days later
01:35as
01:35well. So this is not the end of the story. The market is expecting it. And yet we may have
01:42a chance
01:43of even more volatility depending on how those speakers give the guidance for the next few weeks ahead.
01:51OK, so still an opportunity, perhaps some surprises there from the Fed. Let's think about the other
01:55central bank decisions that we have this week. What are you watching for when it comes to
01:59the Bank of Bank of England and the Bank of Japan on Friday?
02:04The Bank of Japan probably has the easier task of the two. The market is fully expecting a rate hike
02:11this week. There's been no pushback from the Japanese authorities. The market is ready for that.
02:15They're even thinking that there'll be another one before the end of the year. And Governor Ueda is
02:21pretty experienced at using the press conference to try and steer people's thinking on what will come
02:26next in terms of Bank of Japan. The market has probably got that all priced in. There shouldn't be
02:32too big a reaction in the Japanese markets. UK is a completely different story because inflation is high,
02:39energy costs are still rising and you have a very important UK budget coming up next month.
02:45The Bank of England is in a much more difficult job. There have been very strong hints from Governor
02:50Bailey that they do not want to hike interest rates, even though pricing in the market suggests
02:56that that is probably the best course of action. So you're going to have plenty of friction here.
03:00They may not do anything this week, and yet they might, against their better judgment,
03:05they may want to guide the market to say that there is a hike coming up. But will it be
03:09enough?
03:09Because we still have to, investors have to be convinced that that budget, when it comes up in
03:15October, is going to be the right mix of spending and cutbacks that the UK needs to see to get
03:21its
03:21house back in order. The long end of the gilt market is likely to be pretty volatile. The Bank of
03:27England
03:27will have a job controlling it, and then it will feed into where the budget is going. Whatever happens,
03:33you can expect a steeper yield curve and a lot of volatility in the pound as well.
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