FYI | Aug 04 2006
By Greg Peel
Both the US and Australia are currently hanging on every snippet of economic data, every offhand word said by officials, as they try to determine whether or not there will be another rate rise. In the case of Australia, November is probably the target. The US is looking at next week.
But there was another centre of attention overnight as, out of the blue, the Bank of England raised rates by 25bps to 4.75% – the first rate hike in two years.
Australia and the US are toying with probabilities of 50/50, but in the UK the truth is that of 46 economists surveyed by Bloomberg News, only eight were predicting a rate rise last night. This had an unsurprising effect on the FTSE 100, which fell 93.7 points to 5838.4, a fall of 1.6%.
Europe’s second biggest economy has found its pace of growth accelerating to its fastest level in two years and, like everywhere else, oil prices are biting. June inflation was above the BoE’s 2% comfort zone.
The UK rise topped an amazing night where no less than five central banks moved to increase rates. As well as the much anticipated European Central Bank increase of 25bps to 3.00%, Denmark, Slovenia and South Africa also tightened policy.
In the US the day started on a weak note, until a strong retail sales figure was posted. This was bolstered by some more obscure economic data which leant more weight to a Fed pause. Despite the European markets, and despite some more poor earnings reports (including Ford, which doubled its previous loss forecast), the Dow Jones managed to rally to close up 42 points, to complete a range of about 100 points on the day.
Tonight’s employment figures will be closely watched as a potential indicator for Fed thinking next week.
Speculation as to whether Australia is headed towards another rise in November, and maybe even another after that, will no doubt ebb and flow for the next couple of months. Economists in Australia presently hold a wide spread of opinions, ranging from two more rises to no rises and easing early next year.
Readers may which to read some of these views, and views on global markets in general, in yesterday’s feature "An Economists’ View On The World, And Australia, At Present".