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SNB continues to cut, BOE sticks to pause

The Swiss National Bank (SNB) cut its key interest rate by another 25 basis points to 1.25% on Wednesday, while the Bank of England (BOE) kept its main interest rate unchanged at 5.25%. The Swiss franc suffered losses versus all other major currencies after the SNB move. Equity markets were mixed following the day of heavy central-banking news.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
SNB building
© Shutterstock

The SNB became the first of the world’s major central banks to cut rates at two consecutive policy meetings during the current cycle on Thursday. The SNB justified this second interest rate cut citing easing inflation compared with the previous quarter. Swiss inflation held a 1.4% increase from last year in May - its fastest pace so far this year, but well within the SNB’s target range of 0% to 2%. The central bank now expects inflation of 1.3% in 2024, 1.1% in 2025 and 1.0% in 2026.

Further supporting the decision was the renewed strength of the franc, which was trading at more than 1.05 versus the euro before Thursday’s announcement. The franc had reached an all-time high versus the euro near 1.08 in January before steadily falling. In the turmoil surrounding the snap elections in France and other political disarray on the continent, the franc has rebounded rapidly since the end of last month. The interest rate cut could pressure the franc in the short term with the franc falling from just over 1.05 euros to about 1.048 euros and 1.131 US dollars to 1.125 US dollars immediately after the announcement. The SMI gained 0.4% on Thursday.

Bank of England waits it out

The BOE kept rates unchanged at a 16-year high on Thursday, despite inflation falling back to the Bank’s 2% target a day earlier. BOE Governor Andrew Bailey cited uncertainty about the future of price increases in justifying the decision. Economists are split about whether the central bank will cut at its next meeting in August, but most expect easing to begin in September or November.

Mixed markets

In New York, tech stocks dropped on Thursday following a recent strong rally. Markets reopened after a public holiday on Wednesday with the Nasdaq-100 falling 0.8% as traders took profits from chipmaking stocks. The Dow Jones Industrial finished the session 0.8% higher and the S&P 500 lost 0.3%.

In Asia, stock markets were also mixed on Friday as traders digested macroeconomic data. In Tokyo, the Nikkei 225 was trading marginally lower after headline inflation in Japan rose to 2.8% on the year in May, up from April’s 2.5%. Core inflation, which excludes fresh food prices, was 2.5%, lower than market expectations. Core-core inflation - which strips out both fresh food and energy and is considered to be the Bank of Japan’s favourite gauge of inflation - was 2.1%, lower than April’s 2.4%. The yen has fallen against the dollar for seven days in a row, causing the Japanese government to warn it could intervene in currency markets. In the meantime, the US government put Japan back on its currency monitoring list, without labelling the country a currency manipulator.

Elsewhere in the region, the Australian Composite Purchasing Managers’ Index fell to 50.6 from 52.1 in June, a five-month low. Both the manufacturing and services component contributed to the decline. The S&P/ASX 200 was trading 0.3% higher on Friday. In South Korea, the Kospi was down 0.7%. Hong Kong's Hang Seng Index lost 1.4%, while the CSI 300 was trading slightly lower.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: A series of Services and Composite Purchasing Managers’ Indices are due, including from Germany, the euro area, UK and US; UK retail sales, Canadian retail sales.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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