Around the world, inflation remains stubbornly high, and with many of the major central banks meeting in November, it’s set to be a key month for global financial markets. Early in November, both the US Federal Reserve (2 November) and the Bank of England (3 November) will be deciding on the future path of interest rates in their respective economies.
Most recent inflation data in the US was on the stronger side of expectations. While September’s headline inflation declined slightly to 8.2% year-on-year, core inflation (which strips out the volatile food and energy component) reached a 40-year high, of 6.6%. This was seen as solidifying market expectations for another 75 basis point hike from the US Federal Reserve – with the CME FedWatch Tool currently assigning a 94% likelihood of this happening.
Market expectations are for the UK’s Bank of England to also go with a 75 basis point move higher, although some are picking the possibility of a bigger move. In its battle against rising inflation (which rose back into double-digit territory in September, to 10.1% year-on-year), the bank has raised interest rates seven times.
UK financial markets have been volatile of late, as its government, then led by Liz Truss, announced a stimulus package that was seen as being inflationary. This prompted the Bank of England to say it was prepared to move rates even higher if needed.
Markets have since calmed down a little, as first the Chancellor, and then the Prime Minister were replaced. But investors remain wary, and await both the release of a new budget (on 31 October) to better understand the government’s fiscal policies going forward, and whether the Bank of England goes ahead with quantitative tightening – the process of reversing some of the support it has given UK financial markets over the last ten years or so.