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Headlines
- Rate cuts gain momentum globally
- Half of developed markets easing policies
- U.S. Federal Reserve expected to follow suit
The global cycle of rate cuts is accelerating, with central banks from half of the developed markets beginning to ease their policies, potentially impacting financial stocks. Notably, the U.S. Federal Reserve is preparing for a potential rate cut in September.
The Swiss National Bank (SNB) initiated the first rate cut among developed markets this cycle, reducing borrowing costs to 1.25% in June. With inflation at 1.3% year-on-year, well within the SNB's target range, another cut is anticipated in September, which could influence financial stocks in the region.
The Bank of Canada is expected to continue its rate cuts, shifting its focus from curbing inflation to safeguarding the economy. Despite population growth helping to avoid a recession, previous rate hikes have affected consumer spending and housing demand, with potential implications for financial stocks.
Sweden's Riksbank concluded a long period of monetary tightening in May with its first rate cut of the cycle. With inflation cooling and the economy contracting sharply, further cuts are likely, despite interest rates standing at 3.75%.
The European Central Bank (ECB) maintained rates at 3.75% last month after a cut in June. While overall inflation has dropped close to the ECB's target, service sector price pressures keep some policymakers cautious. Money markets suggest a high probability of another rate cut in September.
The Bank of England cut interest rates from a 16-year high, marking the first reduction since March 2020. Governor Andrew Bailey, who led the narrow vote, indicated a cautious approach going forward.
Federal Reserve Chair Jerome Powell set the stage for the U.S. central bank's first rate cut of this cycle in September. With inflation moderating, the Fed is focusing on potential economic weakening and rising unemployment, with markets pricing in significant cuts by year-end.
The Reserve Bank of New Zealand maintained its cash rate at 5.5% but signaled potential easing if inflation decreases. Traders expect the bank to hold rates in August before cutting in October.
Norway's annual core inflation fell faster than expected to 3.6% in June. Despite this, the Norges Bank is likely to maintain rates at their 16-year high of 4.50% until early 2025, though markets suggest a possible move in December.
Lower-than-expected core inflation data has shifted expectations for the Reserve Bank of Australia. Markets now see a high likelihood of a rate cut by the end of the year, with a rate hike in August deemed unlikely.
The Bank of Japan stands out by raising its key policy rate to 0.25%, the highest in 15 years, and planning to slow its massive bond-buying program. Governor Kazuo Ueda has not ruled out further hikes, emphasizing readiness to adjust borrowing costs as needed.
