Market Information Friday 2 August 2024

The Bank of England has decreased interest rates for the first time in four years, from 5.25% to 5.00%. This decision follows a decrease in the British inflation to the 2.00% target in May, though it is expected that the inflation increased to 2.7%, as the decrease in energy prices will fall out of the year-on-year comparison. The concerns about high service sector inflation (5.7%) and slow wage decline in the private sector still exist. Following the announcement, the British Pound decreased by 0.4% against the Euro, the two-year yield declined by 6 basis points to 3.76%, and the London stock market increased.

The Federal Reserve (Fed) has maintained interest rates at 5.25% to 5.05%. Fed Chairman Jerome Powell indicated that an interest rate decrease is approaching and that inflation risks are less significant. Labor market developments are also considered. The CME Fedwatch Tool estimates a nearly 90% chance of a decrease in September. Analyst Porcelli still expets three interest rate decreases in the remaining of 2024.

Oil traders bought a significant amount of call options due to increased tension I the Middle East, which could lead to higher prices. Over 300,000 Brent call option contracts were traded on Wednesday, the highest since April. Trading was dominated by large call spreads, such as USD 87 and USD 90 for October and USD 110 and USD 130 for November. A barrel of Brent oil was recently near USD 81. The market is worried about a potential escalation in the conflict between Israel and Iran, as well as Tehran-backed groups in Gaza, Lebanon, Yemen, and elsewhere, threatening oil supplies. The latest trigger was the killing of senior Hezbollah and Hamas leaders.

The 6M Euribor decreased with 1 basis point to 3.58% compared to previous business day. The 10Y Swap decreased with 5 basis points to 2.54% compared to previous business day.

In the attachment, today’s market data on money and capital market rates as well as other rates are presented.