Bank of England Hikes Interest Rates

The major US indices had a relatively quiet session with the S&P 500 closing virtually flat. Tesla (TSLA) shares copped another beating last night, closing down 6.8% despite just a 0.2% fall for the Nasdaq 100. Rumours that the government may look at scrapping electric car subsidies added to the weak earnings announcement the prior day to cause the drop in price. Locally, the ASX 200 continues to consolidate its early October gains but has still failed to break through 6,000.

The main event overnight was the Bank of England rate decision at which the board voted 7 to 2 to raise rates by a quarter of one percent to 0.5%. The primary reason for the hike was a bump in inflation that likely resulted from the weaker pound. Although the pound has been rising gradually against the US dollar since October of last year, it is still far below pre-Brexit levels. The pound initially spiked on the news of the rate hike but quickly reversed as markets realised that the vote wasn’t unanimous and the hike was more ’dovish’ than expected.

Bitcoin extended its inexorable rise, breaking above US$7,000 for the first time. The break above $7,000 was quite violent with the price quickly spiking to $7,340 and then just as quickly crashing $600 to $6,800 before recovering to finish at just above $7,000. The level of volatility in bitcoin is almost unprecedented for a financial instrument with 10%+ swings almost a daily occurrence. The CME Group has announced a plan to launch Bitcoin futures sometime in before the end of the year which would potentially further legitimise the digital currency while also potentially facilitating increased speculative activity.

Today Australia releases retail sales data which is forecast to have grown 0.4% for the month of September. Yesterday’s trade balance data showed a bigger surplus than expected as a result of strong iron ore exports and flat imports. This marks the 9th of 9 monthly surpluses for this year as our terms of trade have improved substantially from last year.

Data Releases:

–    Australia Retail Sales 11:30am AEDT

–    US Employment Change & Unemployment Rate 11:30pm AEDT

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This article was written by William O’Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.