Commentary: Central Banks in Spotlight
Last week, all major western central banks kept their base rates unchanged. The US Fed, ECB, and Bank of England currently have rates at 5.50%, 4.50%, and 5.50%, respectively. As largely anticipated, the Fed has revised its forecasts of key rate due to the recent success in terms of inflation. It now expects to reach 4.75% by the end of 2024 and 3.75% by the end of 2025. Meanwhile, the consensus forecasts for ECB’s main rate are 3.75% by the end of 2024 and 3.0% by the end of 2025. In contrast, Bank of England provided a hawkish tone, with 3 out of 9 representatives advocating another 25 bps hike.
Due to the dovish tilts from the Fed, equity markets have rallied. US stocks delivered the strongest gains, with small and mid-caps outperforming their larger peers.
Due to the expectations on quicker rate cuts next year, yields in bond markets declined by considerable margins, as the 10-year US treasury fell below 4.0% for the first time in around 5 months. European bond markets saw falling yields as well, with 10-year German bund now offering 2.01% (down from last week’s 2.27% and this year’s peak of 2.97%).
