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Daily Wrap Up 4 November 2021

4 Nov 2021 04:44 PM

Sterling tumbles as BoE disappoints

It has been a busy 24 hours for central banks as the Federal Reserve announced its tapering plans last night, and today, the Bank of England kept rates on hold, disappointing may traders. The Fed revealed it will wind down its monthly bond buying scheme by $15 billion per month, with the aim to end the programme by next year. At the same time, the central bank said their approach will be flexible so that gave off a slightly dovish message. In addition to that, the Fed are not in any hurry to hike interest rates so that added to the optimistic mood in the markets.

European stocks got off to a strong start this morning thanks to the Fed. The FTSE 100 was given an extra boost by the Bank of England, who left rates on hold. On the run up to today’s meeting, there was a lot of chatter the bank would lift rates but, in the end, only two of the nine members of the monetary policy committee voted to increase rates. The fact the vote wasn’t even close to a majority in favour of a rate hike suggests that rates could remain on hold for some several months to come. Last month, Andrew Bailey talked about the need to act in a bid to tackle the rising inflation, so that was a factor behind the speculation that rates would be boosted. Mr Bailey reiterated the point that the rise in inflation is likely to be transitory and he believes that CPI will drop below the 2% target by the end of the projection period. The central bank chief said it was a very close call with respect to the rate decision. Sterling is taking a beating due to the BoE decision and in turn, that has helped the FTSE 100 as stocks like Diageo, Reckitt Benckiser and Ashtead earn a relatively large portion of their revenue overseas, so a softer pound helps the stocks. Over in the US, the S&P 500 has notched up another record high as the bull run continues.

Gold and silver have rebounded from the multi-weeks lows that were posted yesterday as a reaction to the Fed meeting. The greenback hit a three week high today, partially because of the brutal decline in the pound but also because of the solid US jobless claims report. The level dropped to 269,000 – its lowest mark in over 19 months. Yesterday’s ADP employment was a pleasant surprise as it hit a four month high of 571,000, while economists were projecting 400,000. Tomorrow the US non-farm payrolls report will be posted, and traders will be treading lightly as the previous two readings were huge disappointments. To a certain extent, the data will be less influential than normal seeing as the Fed announced their tapering plans last night.

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