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Global stock markets in a spin ahead of interest rate decisions

London . Agencies
13 Jun 2023 00:00:00 | Update: 12 Jun 2023 22:54:50
Global stock markets in a spin ahead of interest rate decisions

It's a big week for global stock markets with interest rate decisions from the three major central banks coming one after another. And one take away from last week's surprise rate increases in Canada and Australia, is not to take anything for granted.

World shares were steady near last week's 13-month highs on Monday, with European shares a touch firmer and US stock futures pointing to a positive open for Wall Street. In short, investors are biding their time - with May US inflation data on Tuesday, released as the US Federal Reserve kicks off a two-day meeting, event risk is high, reported Reuters.

The Fed is widely expected to "skip", note, not "pause" hiking rates in June when it concludes its meeting on Wednesday. The European Central Bank is tipped to deliver a quarter-point rate hike on Thursday, while on Friday the Bank of Japan is expected to maintain ultra-loose monetary policy.

The debate in market circles has shifted in recent months. First, most major central banks (not the BOJ of course) were expected to pause after a series of rate hikes and move to rate cuts later in the year. Now any rate-hike pause is suspected to be followed by further tightening (not easing) to contain sticky inflation.

Last week's rate decisions support this idea -- the Bank of Canada hiked rates last Wednesday to a 22-year high of 4.75%, having held rates steady since January. A day earlier, Australia's central bank raised rates by a quarter point to an 11-year high and warned of further tightening ahead.

Those surprise decisions suggest that the rate trajectory traders have mapped out and priced in one day can quickly be made redundant the next.

Citi strategists said the Fed could be faced with the lesson that central banks such as Canada's have learned – further tightening is still needed to bring inflation to 2%.