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Bank of England rate decision, Nike earnings – What to know in markets Thursday

The Bank of England (BOE) is poised to post its final monetary policy decision of the year Thursday at 7 a.m. ET.

Members of the Monetary Policy Committee (MPC) for the world’s fifth largest economy are expected to keep benchmark interest rates at 0.75%, maintaining this level for a sixteenth consecutive month.

While economists and investors have mostly embraced the outcome of unchanged rates, political developments and economic data over the past week have shifted the outlook for the U.K. heading into 2020, especially surrounding Brexit. So far, the BOE has mostly bucked the monetary easing trend unleashed by most global central banks this year, as policymakers awaited the outcome of Brexit before making changes.

With these factors in mind, the BOE’s updated monetary policy statement and assessment of the current economic situation will be of exceptional interest to investors on Thursday. It comes just after the U.S. Federal Reserve decided to hold its own benchmark interest rate target steady last week and removed language referring to “uncertainties” over the economic outlook.

Mark Carney, Governor of the Bank of England listens at a Bank of England Financial Stability Report news conference in London, Britain December 16, 2019. Kirsty Wigglesworth/Pool via REUTERS

In the U.K. and around the world, financial markets cheered Prime Minister Boris Johnson’s decisive Conservative majority win in the House of Commons after the U.K. general elections last week, with the result viewed as a welcome pathway to a Brexit deal by the January 31 deadline.

But concerns over the withdrawal have since resurged after Johnson said he would be pursuing legislation to block an extension of the Brexit transition period beyond 2020. This would narrow the window for the U.K. and E.U. to negotiate a trade deal and potentially generate the kind of disastrous no-deal exit European investors and companies were hoping to avoid in the first place.

“We would revise down our forecasts for GDP growth and anticipate Bank Rate cuts if the U.K. exits the transition period in December 2020 without a trade deal; the imposition of tariffs would hit demand for U.K. exports and lift consumer prices,” Sam Tombs, chief U.K. economist for Pantheon Macroeconomics, wrote in a note. “But the risks to our forecast are not solely to the downside; faced with no-deal, the PM might change tack and decide to extend the transition period into 2021.”

Recent economic data has also begun to make a case for lower rates. U.K. inflation held at the lowest level in three years in November, with the region’s Consumer Price Index (CPI) at 1.5% for the month and well below the central bank’s 2% target. That could give policymakers room to cut and stimulate spending and higher prices in the U.K. economy.

After its last meeting in November ahead of the snap U.K. elections, the BOE’s MPC had also decided to hold benchmark interest rates steady at 0.75%. Seven of the committee’s nine members had voted in favor of the decision, while two MPC members surprised with dissents calling instead for a rate cut.

The two dissenters – Michael Saunders and Jonathan Haskel – said at the time that their support for lower rates was due to fewer job openings and concerns over global growth and Brexit. Both are expected to vote again for lower rates in Thursday’s decision.

Economists mostly believe the Bank of England will cut rates at some point in 2020. Market participants have also anticipated such an outcome, pricing in about 56% probability that rates will be at least a quarter-point lower by the end of next year, according to CME Group data.

Other major global rate decisions Thursday will come from Sweden’s Riksbank, the Bank of Japan and the Bank of Indonesia.

Nike earnings

Separately, fiscal second-quarter earnings results from athletics-wear giant Nike (NKE) will be a focal point for equity investors Wednesday. The Beaverton, Oregon-based company will post results after market close.

Consensus analysts expect Nike will deliver adjusted earnings of 58 cents on revenue of $10.08 billion, according to Bloomberg-compiled data.

“We expected 2QF20 to demonstrate continued strong brand momentum driven by product innovation and digital,” Telsey Advisory Group analyst Cristina Fernandez said in a note Monday.

Customers visit multinational sportswear manufacturer Nike store in Shenzhen. (Photo by Alex Tai/SOPA Images/LightRocket via Getty Images)

The results come amid a host of major leadership and strategic changes for the company over the past couple months. Nike announced in October that its longtime CEO Mark Parker would be stepping down, with John Donahue set to take the reins in January.

It also recently announced it would no longer sell its shoes and apparel on Amazon (AMZN) as it continues to expand its own direct-to-consumer network. These changes, however, have done little to dent Nike’s stock. Shares have risen 15% since its last earnings report in September, or about double the return of the S&P 500 over the same period.

“Looking forward, we remain positive on Nike as we continue to view it as a winner in the consumer/retail landscape with the ability to drive continued strong sales growth and gross margin improvement through product innovation, inventory management, more direct customer engagement, and elevated experiences digitally and in stores,” Fernandez said.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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