Focus shifts to the BoE, as markets gain post-FOMC

• Markets rise on less hawkish FOMC stance
• BoE in focus after razor thin September vote
• Apple earnings key, although iPhone 15 impact will be questionable

European markets are pushing sharply higher in early trade today buoyed by the prospect of amid 2024 normalisation of interest rates from the Federal Reserve. Yesterday’s FOMC decision to keep rates steady came as expected, although the bank is clearly growing in confidence over the direction of the economy and inflation. With the Fedwatch expectations for a December rate hike falling from 27% to 20%, markets appear to be celebrating a ‘lower for shorter’ theme that helped drive yields down and stocks higher.

All eyes turn to the Bank of England today, with the MPC expected to keep rates steady despite the relatively lofty inflation rate evident in the UK. Last month’s razor thin 5-to-4 vote in favour of a pause does raise questions over what to expect today, especially given the fact that inflation has continued to flatline at 6.7%. However, base effects should see a sharp decline in the October CPI figure when it is released in two-weeks’ time, with a decline down towards 5% likely as the whopping 2% October 2022 figure is replaced. With the UK economy in contraction (according to PMI data), and inflation set to move sharply lower, it looks likely that the MPC will opt to take a cautious approach today. The breakdown in votes will be a key component, with any increase to the previous tight majority signalling the likely end of the tightening phase for now.

Earnings come back into focus as a key driver of market sentiment today, with Apple widely expected to post a fourth consecutive revenue decline. Just days after Apple announced their new MacBook pro models and M3 processors, markets will be looking out for early iPhone 15 sales. It is worth noting that this is likely to represent the lull in Apple earnings, as much of the period saw customers holding off in anticipation of the new iPhone 15 release. That late-September release date will result in a big boost to Q4 earnings, with markets instead looking for guidance over early sales this time around.