Market Timing With Central Bank Meetings

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Global central banks are in a rate-cutting frenzy. Here are the 7 other meetings coming up this month, and what’s expected at each.

  • The European Central Bank announced rate cuts and stimulus for the eurozone on Thursday.
  • Turkey and Denmark also slashed rates on the same day.
  • Seven more major central banks including the Federal Reserve will meet in September, meaning more rate cuts are on the table.
  • Read more on Markets Insider.

On Thursday, the European Central Bank announced a round of stimulus for the eurozone that included both a rate cut and quantitative easing.

Interest rates were slashed 10 basis points to -0.5%, the lowest level ever and the bank said it will begin purchasing 20 billion euros of bonds a month starting in November to inject money back into the economy.

It’s the first time the ECB has changed the deposit rate since 2020, a bold cut for outgoing president Mario Draghi, who will be replaced by Christine Lagarde – the former International Monetary Fund Chairman – on November 1. The move is the latest in a trend of central banks lowering rates to boost local economies.

In addition, smaller banks have also handed down rate cuts. Turkey’s central bank also surprised with a jumbo rate cut early Thursday before saying that it will begin to slow its pace of monetary easing going forward. Later in the day, Denmark also cut its interest rate to a historical low, following in the ECB’s footsteps, Bloomberg reported.

However, not every central bank has handed down a rate cut this month. Earlier in September, Australia’s central bank held interest rates at a low 1%, and Canada’s held its rates at 1.75%.

But going forward, there are likely more cuts from major central banks on the horizon. After the ECB decision, all eyes are on the Federal Reserve, which meets September 18. Most investors think that the Fed will cut rates, but it remains to be seen by how much. President Trump has stepped up his bashing of the Fed and Chairman Jerome Powell, saying they should cut faster.

Trump has even gone as far to say that the US should have zero or negative interest rates, following in the footsteps of countries in Europe and Japan that have had very low and even negative rates for years.

Here are the seven central banks that have yet to meet in September, as well as what markets and investors expect them to do at upcoming meetings:

1. US Federal Reserve

Next meeting: September 18

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Current interest rate: 2.25%

What happened at the last meeting: The Fed cut rates by 25 basis points in July

What’s expected at the next meeting: Consensus is for another 25 basis point cut

2. Swiss National Bank

Next meeting: September 19

Current interest rate: -0.75%

What happened at the last meeting: The Swiss National Bank held rates steady

What’s expected at the next meeting: Unclear. While the bank has held rates for some time, pressure from the Fed and ECB could lead to another rate cut, Reuters reported.

3. Bank of England

Next meeting: September 19

Current interest rate: 0.75%

What happened at the last meeting: The Bank of England held rates steady

What’s expected at the next meeting: It depends. The bank has held rates steady for years, but a no-deal Brexit could change its course.

4. Norges, central bank of Norway

Next meeting: September 19

Current interest rate: 1.25%

What happened at the last meeting: The bank held rates steady, pausing a cycle of rate hikes because of global uncertainty.

What’s expected at the next meeting: The bank signaled that a hike is likely in September, but beyond that they will wait and see, Reuters reported.

5. Bank of Japan

Next meeting: September 19

Current interest rate: -0.1%

What happened at the last meeting: The BOJ left interest rates unchanged in July.

What’s expected at the next meeting: The BOJ is likely to continue to hold rates steady.

6. Reserve Bank of New Zealand

Next meeting: September 24

Current interest rate: 1%

What happened at the last meeting: The bank surprised investors with a 50 basis point cut

What’s expected at the next meeting: It’s unclear after last month’s surprise cut. That and a 25 basis point cut in May broke a pause that began in February 2020.

7. Bank of Mexico, Banxico

Next meeting: September 26

Current interest rate: 8%

What happened at the last meeting: Banxico announced its first cut since June 2020 at its la ust meeting in August.

What’s expected at the next meeting: The bank is likely to cut further, the Wall Street Journal reported.

Upcoming Global Central Bank Meetings:
When & What to Watch

Published on July 13, 2020

While global equities markets have maintained significantly lower volatility during the first half of 2020, political and monetary policy uncertainty may have dampened the upside – though U.S. equity markets continues reach new highs. In recent months, investor focus has returned to diverging central bank policies and what the future holds for interest rates: there’s scrutiny on European Central Bank (ECB) policy, debate around the Bank of England’s (BoE) approach to Brexit, and shifting expectations for further interest rate hikes from the Fed. Here’s a quick look at what to watch for during the upcoming monetary policy meetings.

What to Watch: Fed Meeting on July 25-26

In the U.S., the Fed has been gradually raising interest rates. June saw the second rate hike of the year, increasing the range by a quarter point from 1% to 1.25%. The Fed policymakers have reinstated their positive outlook for the economy, as it showed signs of recovery during the second quarter, with unemployment currently at the lowest levels recorded since 2001 (4.4% in June). However, factors such as recent weak inflation readings, shifting market forecasts and the political backdrop continue to be closely monitored. A further rate increase before the end of the year may not be a given; the market will be watching the Fed’s language closely for signals.

With the most comprehensive coverage of sovereign and interbank yield curves in Europe trading on our futures markets, as well as the dollar-denominated Eurodollar and GCF Repo futures, we have a long history as a provider of interest rate derivatives market data. Today, we provide transparent insight into the trading and clearing activity that takes place in our proprietary markets combined with coverage of global derivatives trading in other markets.

WHAT TO WATCH: BOE MEETING ON AUGUST 3

In the U.K., the uncertain political environment and challenges around Brexit, and the subsequent short- and long-term impact on the economy, have been central issues of focus for investors. The snap general election in June produced a little-expected and inconclusive outcome, which served to deliver a fresh injection of complexity and political volatility. Official EU exit talks began in June, and the U.K. government has found itself under increasing pressure to adapt its tactics and Brexit stance going into the negotiations. As a result, sentiment regarding the UK economy remains mixed.

Similarly, there are diverging opinions around the most prudent strategy for the BoE to adopt over the coming months. Following the latest Monetary Policy Committee (MPC) meeting, the rate remained unchanged at 0.25%; however, the vote was not unanimous. The split sparked uncertainty as it indicated the base rate could rise sooner than what markets had priced.

WHAT HAPPENED: ECB MEETING ON JULY 20

In the Eurozone, the economy has shown signs of accelerated growth. Political uncertainty in relation to key elections in the Netherlands and France has alleviated, and the latest economic data suggests the single-currency bloc is enjoying a broad-based recovery in 2020 so far. While the tone continues to err on the side of caution, the ECB has hinted it may be softening its position on monetary policy; some see this as a signal the Bank is believed to be considering gradual first steps toward tapering its stimulus program, but that remains to be seen.

The ECB announced at its July 20 meeting that rates will remain unchanged for the time being.

Brexit talks & central bank policies continue to drive interest rate hedging, with June marking a record trading month for Sterling futures.

View the infographic

Managing Rates Exposure

In light of a rejuvenated macro outlook, a wide range of market participants are looking to manage risk, and they’re relying on deep liquidity throughout the curve across a variety of products to help them adjust their positions quickly when needed. Leveraging ICE’s European interest rate complex, market participants may efficiently manage exposure and capitalize on opportunities. For example, participants quickly turned to ICE’s markets to adjust their rates exposure following the BoE’s June MPC meeting, driving ICE Short Sterling futures to an all time-high trading record of 3.35 million contracts in a single day.

Growing liquidity in ICE interest rates can be seen in a many products, including:

Our interest rate futures and options contracts span geographies and tenors, extending from short-term to medium- and long-term rates providing market participants across the globe with effective tools for managing interest rate risk.

View ICE Interest Rate Contracts

  • Euribor – Open interest (OI) for Euribor futures is at a 4-year peak, while Euribor options average daily volume (ADV) is at the highest since the ECB was actively cutting interest rates a year ago.
  • Short Sterling – Supported by the increased focus on the UK and its markets, Short Sterling futures volume reached record volume in the second quarter, with strong activity in options as well.
  • STIR Futures – In the aggregate, our short-term futures complex traded 4.5 million contracts on June 28, a record day.
  • Gilts – A new OI record for Gilts of 828,398 contracts was reached in May.
  • DTCC GCF Repo Index® – The contract had strong ADV and OI prints for June as market participants hedged higher than anticipated quarter end cash market funding pressure.

As shifts in central bank policies continue to present new risks and opportunities in the global marketplace, investors who have or need interest rate exposure can rely on the liquidity and breadth of our global suite of interest rate futures and options to hedge risk and express market views.

Central-Bank Council Meetings and Money Market Uncertainty

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