BoE raises rates, ECB could follow

As expected, the BoE raised rates yesterday while the ECB did not. FT reports:

The Bank of England did nothing to confound market expectations of 6 per cent rates before the end of the year as it raised its main interest rate for the fifth time in a year to 5.75 per cent. It cited strong growth, limited spare capacity and indications businesses were poised to raise prices for the rise.

The ECB fears capacity constraints will push up inflation in the 13-member eurozone. Jean-Claude Trichet, the ECB president, also highlighted dangers posed by “vigorous monetary and credit growth in an environment of already ample liquidity”.

And expectations for a rate cut in the US are looking less and less realistic. From Bloomberg:

Growth in U.S. service industries unexpectedly accelerated to the fastest pace in 14 months in June, reinforcing evidence the economy picked up last quarter.

The Institute for Supply Management's index of non- manufacturing businesses, including banks, builders and retailers, rose to 60.7 in June from 59.7 in May, the Tempe, Arizona-based group said today. Readings above 50 point to growth...

ADP Employer Services said today that companies added 150,000 jobs in June after a revised 98,000 gain in May. The Bloomberg survey median was for an increase of 100,000 in June.

And Japan's commitment to further monetary tightening will probably not be swayed too much by the latest reading on its leading index. Again from Bloomberg:

Japan's broadest indicator of the outlook for the economy signaled for a seventh month that the longest expansion in more than 60 years may slow.

The leading index was 30 percent in May, the Cabinet Office said today in Tokyo, lower than the 40 percent median estimate of 27 economists surveyed by Bloomberg News. A number below 50 indicates the economy may cool in three to six months.

But it was in China yesterday that threats of tighter policy had the most impact on markets. AFP/CNA reports:

Chinese share prices closed 5.25 percent lower Thursday as investors fretted that a special treasury bond issue and plans to allow greater overseas investment will sap liquidity, dealers said.

Stock markets elsewhere ignored the plunge in China yesterday. It remains to be seen whether they can also ignore the continuing rise in global interest rates.