MACRO: Rate cut, rate hike and hawkish hold

Investors received a fresh set of one of the most timely data indices today. Flash PMIs for September from Europe and the US suggested that economic recovery continues to slow. Apart from that, central banks from the United Kingdom, Turkey and Norway announced the latest monetary policy decisions today.

PMIs from Europe and the United States for September

Flash PMI releases from Europe and the United States shared a common theme - on both sides of the Atlantic Ocean weaker readings were registered compared to a month ago and in both cases readings were weaker than expected. Comments from Markit relating to releases from Germany, the United Kingdom or the United States were similar - supply bottlenecks are a drag on manufacturing activity while demand looks to be peaking. Nevertheless it should be noted that indices from biggest European economies as well as from the United States remain in expansion territory (>50 pts), suggesting that activity continues to increase. Although at a slower pace than in the previous month.

Bank of England provides a lift for GBP

Bank of England left interest rates and settings of the QE programme unchanged at today's meeting. However, a point to note is that there is a growing number of UK central bankers dissatisfied with quantitative easing. It was expected that 8 out of 9 MPC members will vote in favour of keeping QE settings unchanged, just as it was during the previous meeting. However, Dave Ramsden joined Michael Saunders in the opposition leading to a 7-2 vote. Saunders and Ramsden wanted government bond purchases to be reduced from 875 billion GBP to 840 billion GBP. BoE also forecasts that inflation will exceed 4% this year, which further strengthens the case for policy tightening. Interest rate derivatives markets are currently pricing in a 15 basis points rate hike by March 2022.

Unexpected CBRT rate cut pushes lira to fresh record low

While the BoE rate decision was more or less in-line with expectations, the same cannot be said about the decision from the Central Bank of the Republic of Turkey. CBRT was expected to leave rates unchanged at 19.00% today. However, in spite of CPI inflation reaching 19.25% in August, Turkish central bankers succumbed to pressure from President Erdogan and delivered a 100 basis point rate cut, to 18.00%. USDTRY rallied to fresh all-time highs as investors fear that such an unorthodox approach will cause more harm than good.

NOK rallies on Norges Bank rate hike

The Norwegian krone rallied today following the monetary policy announcement from the Norges Bank. The Norwegian central bank delivered a 25 basis point rate hike, in-line with expectations, and became the first central bank from a developed country to raise rates in post-Covid world. Another hike is expected to be made in December.

EURNOK pushed lower today after Norges Bank delivered a 25 basis points rate hike. Technical picture supports further strengthening of NOK against EUR - the pair broke below the 200-session moving average earlier this month and deepened decline after a failed attempt of breaking back above it this week. An upward correction from Q2 and early-Q3 failed to exceed the range of the previous upward correction suggesting the downtrend is still in play. Source: xStation5