UK to potentially raise rate ahead of US, whilst China lowers its rate

October 26, 2015

The UK construction sector

After a poor start to the week, global financial markets went into the weekend on a stronger note.  Monetary policy once again drove movements. Last week saw the Chinese Central Bank lower interest rates, which while partly anticipated still buoyed investors, giving them hope that the worst of the news from China is now over. This decision was compounded with the European central bank chairman, Mario Draghi, hinting that the current quantitative easing may be expanded. The markets most helped have been those hardest hit by the recent turmoil, namely China, emerging markets and Germany.

Commodities companies were also positively affected by the prospect of stronger demand from China once more. However, the industry is still struggling with oversupply that was built up during the commodities bubble leading up to the crash. While many are forecasting that we are now at the start of what could be a 20-year bear market for commodities, BHP Billiton, the FTSE 100 mining giant has issued $6.5bn of hybrid securities which it intends to use for acquisitions. This may be a signal that the market is reaching the bottom and BHP is taking the opportunity to buy up assets at a good price.

In the UK, the economy remains stable, significantly supported by the continuing growth of consumer spending. Consumers are taking advantage of growing wages and stagnant prices. This is in contrast to concerns about a deflationary spiral which means people will put off purchases in anticipation of lower prices in the future. However, manufacturing growth continues to be weak, with growth in the last quarter at its slowest pace in two years. On the whole, the UK appears to be weathering the global economic storm and with the Bank of England interest rate decision due on 5th November, some have begun to speculate that the UK may see interest rates rising before the US.

 

Index Open Close Change % Change
FTSE 100 6378 6444 66 1.03%
S&P 500 2033 2075 42 2.07%
Dax 10104 10794 690 6.83%
Cac 40 4702 4923 221 4.70%
Nikkei 225 18291 18825 534 2.92%

 

In the US, the Federal Reserve Open Market Committee will announce its interest rate decision on Wednesday, following a consumer confidence announcement on Tuesday.

We will have the initial GDP figures for the 3rd Quarter in the UK on Tuesday.