Proactive Investors - As the market awaits the ECB’s interest rate decision, Laith Khalaf, head of investment analysis at AJ Bell, looks to next week’s announcement from the Bank of England.
Following Silicon Valley Bank’s collapse and a near-death experience for Credit Suisse, major central banks are under pressure to take the lever, and the BoE is no different.
Khalaf sees the market pricing in a “one and done” rate hike, positioning the terminal rate at 4.25%.
However, precisely when that one is done is a matter of speculation.
“There is considerable uncertainty about the precise timing of the remaining interest hike that’s been pencilled in though, with a 50% chance placed on it happening at the forthcoming March meeting,” said Khalaf.
“That means the market is pricing in a 50% chance we won’t get an interest rate rise in March, which would be the first time without a hike since November 2021.”
10-year gilt yields opened slightly higher today, adding nine basis points to 3.409%, although the yields has been showing fairly consistent declines in the month to date.
Back to today’s ECB decision, “the market’s prior foregone conclusion of a 50bps hike… has been whittled down to a coin toss today”, said Han Tan, chief market analyst at Exinity, though other would suggest that a coin toss gives 50bps too much credence.
The euro is looking strong against the pound this morning though, adding 0.35% to 87.98p on the EUR/GBP pair.
FTSE firmer, but off highs
The FTSE 100 opened higher, as confidence returned on Credit Suisse’s announcement it would borrow almost US$54bn from the Swiss central bank to shore up its finances.
It had prompted banking shares to spiral on Wednesday, after key investor Saudi National Bank warned it could no longer prop up the bank, seeing its Credit Suisse stock repeatedly suspended from trading.
Deliveroo narrowed its annual losses to £45mln in 2022, down from £100mln a year earlier, adding it was on course for improved earnings this year.
Halma (LON:HLMA) also hinted it was on course to meet expectations, explaining it had made good progress so far in 2023 and would likely strike a £359.9mln pre-tax profit for the full-year.
Virgin Orbit was less upbeat though, announcing it was pausing all operations for at least a week and furloughing staff, as it looks for a new investment plan to battle financial woes.
And with the small caps, researcher hVIVO rose 2% after announcing it had successfully manufactured its Omincron human challenge agent.
Footsie in recovery mode
After copping a nearly 4% beating on Wednesday, it feels like the only way is up for the UK lead index.
Footsie has managed to recover 1.2% to 7,435 in the early morning session, with a fair chunk of the recovery emerging from battered banking stocks, namely Barclays (LON:BARC), Lloyds (LON:LLOY) and HSBC (LON:HSBA).
Rentokil’s dividend boost announced today has sent the pest control kings to the top of the FTSE 100 table, adding 7% to 537p in early trades.
Helios Towers is also coming off strong from its full-year earnings call, adding around 6% after underscoring a 25% year-on-year revenue increase and 18% adjusted EBITDA increase.
The headlines are undoubtedly focused on Credit Suisse following yesterday’s dramatic trading halt. The beleaguered bank has taken out a £45.5bn loan from the Swiss central bank to reinforce the group's balance sheet after yesterday’s plunge.
"My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs," said chief executive Ulrich Koerner.
In the European markets, Frankfurt has added 1.1% to 14,900 while Paris is up 1.3% to 6,974.
Bitcoin has been one of the benefactors of the latest round of market instability, and it remains steady at US$24,600 today, having added 1.3% in the past 24 hours.
But digital gold isn’t as strong as real gold, which remains near record highs of £1,590 an ounce.
Looking ahead, today we have the ECB’s interest rate decision, the first of the major central banks to do so in the midst of a genuine banking crisis.
Previous pricing in a 50bps hike, the market has readjusted its expectations down to 24bps, perhaps even zilch. We’ll find out this afternoon.