Daily Brief: The Bank Of England Opts Not To Raise Interest Rates, So… Surprise?

Daily Brief: The Bank Of England Opts Not To Raise Interest Rates, So… Surprise?

over 2 years ago3 mins

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The Bank of England (BoE) said on Thursday that it wouldn’t be raising UK interest rates this month, and grumpy investors can’t stand surprises.

What does this mean?

Investors went into this update expecting the BoE to announce that it would be raising interest rates, largely because that’s exactly what it hinted at last month. So it was a real rug-pull when the central bank announced that it’d be keeping rates at their historic lows – especially given its admission that it’s expecting inflation to hit 5% by April next year. Still, the BoE had a solid justification: there are signs that consumer spending might be slowing down due to product shortages and the removal of government support. A rate hike, then, might only risk denting economic growth even more.

UK growth BoE

Why should I care?

For markets: Ditch the pound?

The BoE did say a hike’s likely to arrive in the next few months, but its decision means it’s still cheaper to borrow money in the meantime. That should encourage people and businesses to take out loans and spend their cash, which could be why a major UK stock market index rose following the news. The British pound wasn’t quite so lucky: lower rates for longer make the currency less appealing to international savers and investors, which might be why it fell against the US dollar.

Pound vs dollar

The bigger picture: The Fed stays predictable.

The US Federal Reserve (the Fed) announced on Wednesday that it isn’t hiking interest rates either – not until the country’s unemployment rate improves. But at least investors got something they were expecting: the Fed said it’d start tapering its $120 billion-a-month bond-buying program by $15 billion every month, which could mean the support is gone completely by the middle of next year.

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Qualcomm Reported Better-Than-Expected Results, And It’s Expecting Even More Good News

Qualcomm image

Qualcomm reported better-than-expected quarterly results late on Wednesday, as the US chipmaker rubs elbows with any supplier that can help take it to the top.

What does this mean?

There are two key parts to chip production: designing them and manufacturing them. And while Qualcomm takes care of the first step itself, it tends to leave the latter to bigger outfits like TSMC and Samsung. Trouble is, those companies have been struggling to keep up with demand in this shortage-riddled world. So Qualcomm’s pivoted: it’s been turning to multiple manufacturers to make sure it has a stronger supply pipeline than its competitors do. The tactic seems to be working: Qualcomm’s chip revenue climbed by 56% last quarter versus the same time a year ago, which in turn helped boost overall revenue by a better-than-expected 43%.

Why should I care?

For markets: Qualcomm seizes the day.

The good news is that the supply chain bottleneck is getting ever-so-slightly better: recent data showed that chip delivery times did get longer last month, but it was the smallest increase in nine months. That might be why investors sent Qualcomm’s stock 8% higher after the announcement – a welcome jump given that, prior to this update, Qualcomm had underperformed an index tracking chipmakers’ stocks by nearly 40% this year.

Qualcomm stock

Zooming in: Variety is the spice of life.

Qualcomm is the biggest maker of smartphone chips in the world, and it said on Wednesday that it’s expecting sales in the segment to hit record levels this quarter. But it also seems to be aware that demand won’t hang around forever, and it’s increasingly been branching out into chips for vehicles and the Internet Of Things. The move already seems to be paying off: the company made more than $10 billion from non-smartphone chips between October 2020 and September 2021 – almost a third of its overall chipmaking revenue in the same period.

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