Today's markets: Another week of rate cuts?

Fourteen years out of office...you’d think they would have an idea or two beyond stopping us from having a cig with a pint. Well, it’s conference season, so we get to find out what other amazing ideas Labour has dreamt up. Chancellor Reeves promises no return to austerity, 

but last week it became clear that the new government has rather been talking Britain down. Friday’s consumer confidence survey took a hit because of the talk of pain in the Budget. Even a former Bank of England chief economist said the government was too downcast.

Pessimism is clearly on show in Germany, too. This morning the manufacturing PMI fell to 40.3 from 42.4. There was an immediate hit to the euro on that figure, with EURUSD down around 0.5 per cent to trade near 1.110.

Elsewhere this week, the Reserve Bank of Australia (RBA) will cut rates at some stage in the near future, but not at this meeting. Although policymakers ought to be apprised of the monthly inflation report due on Wednesday, they may prefer to wait for the quarterly CPI report, which is due on 30 October, before taking any action. RBA governor Bullock has said that “if the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term”. However, sticky inflation suggests it will wait a little while longer to begin easing. The question is whether the Federal Reserve rate cut last week prompts it to act sooner. If the RBA holds fire as the Fed cuts, we could see further Australian dollar appreciation.   

The Swiss National Bank (SNB) became the first major central bank to reduce interest rates when it made a 25bps cut in March. Since then, a sharp rally in the Swiss franc, as well as low inflation, have led to expectations that the SNB may need to conduct a jumbo rate cut this week. MUFG, UBS and Bank of America (BofA) are among those who think the central bank ought to cut by 50bps in order to contain Swiss franc strength.   

That’s all the backdrop to this morning’s price action. In short, stocks have opened mixed in Europe with mild gains for London compared with a pullback in Paris, the latter being hurt as BofA analysts cut LVMH and Kering to neutral.

By Neil Wilson, chief market analyst at Finalto