SNB cut rates by 25bp, marking the potential end to its easing phase

A mixed affair in Europe has the FTSE 100 outperforming ahead of the Bank of England rate decision later in the day. The morning kicked off with a raft of employment metrics from the UK, with lower-than-expected total wage growth (5.8%) and a bump in the employment change figure (144k) being counteracted by a seven-month high for the claimant count (44k). Coming ahead of the Bank of England’s appearance, the moderation of wage pressures are unlikely to shift the dial given the clear ongoing inflation concerns associated with wage growth that is almost three-times the rate of the target inflation rate. While we have seen UK gilts moving lower in response this morning, the fact of the matter is that ongoing inflation pressures will soon be accompanied by the uncertain impact of Trump’s tariffs and global trade war. For the BoE, it is a time to wait and see rather than ease right now. Markets are expecting another two cuts this year, but those cuts are likely to kick-off in June as things stand.

Yesterday’s FOMC meeting provided grounds for optimism within markets, with big tech leading the push higher for US equities. Great uncertainty remains over the direction of travel for the US economy, with business activity likely to remain subdued until we see greater clarity over the trade relationships and potential pricing for US imports and exports. Nonetheless, the Fed stand ready to act where necessary, with the dot plot pointing towards two rate cuts this year. Nonetheless, the big move came in the form of the shift in quantitative tightening, with the bank scaling back their program that serves to reduce the bonds held on their balance sheet. The huge cut from $25bn to $5bn per month means QT has near enough ended, serving to provide a boost for those hoping the Fed will ultimately move towards a fresh bout of QE in the event of a Trump-led economic decline.

The Swiss National Bank opted to cut rates once again this morning, marking the third of the four central bank decisions due this week. The rate cut had largely been telegraphed, and the non-existent inflation seen in Switzerland highlight exactly why they can continue to ease (0.3%). Nonetheless, this cut is particularly notable as many believe it could be the final move after a raft of cuts that took rates from 1.75% to 0.25% in just five-meetings. Instead, the committee need to gauge whether a move towards negative rates will be justified or not. The absence of the dollar as a haven despite recent market declines has helped push CHF higher, and unfortunately that means further disinflation as imports become cheaper. Could this spark another bout of easing from the SNB? If not, further CHF strength may be forthcoming.