Today’s Q2 US GDP data were positively received by the market – EURUSD fell to around 1.09 in the hours after the release (although it subsequently bounced back a little). That initially sounds surprising given that the 2.3% qoq(a) outturn undershot market expectations of 2.5%. But there are positives in the details of the release, … More US Q2 GDP: market’s glass half full view bodes well for USD strength
This morning’s BoE data (for June) contained two potential downsides: (i) weak corporate borrowing, actually involving net repayments on the month even on the broader total external finance measure and a rise in borrowing rates equivalent to a 25bp MPC rate hike; (ii) a fall back in foreign demand for UK government securities. Against that, … More Divergent UK sectoral borrowing trends and reduced foreign demand for UK debt: monetary policy implications?
Tomorrow’s FOMC press release is being eagerly anticipated by market participants, keen to see whether FOMC will provide more definitive guidance about whether Fed liftoff will start in September (most economists’ favoured date) or December (more consistent with market pricing). Despite such hopes, I suspect that the FOMC press release will likely contain only relatively … More FOMC likely to keep options open and acknowledge commodity weakness: limited USD downside possible
Recent EA macro data have continued to underwhelm – the latest subdued credit data follow Friday’s weaker than expected flash PMI – while US durable goods orders were better than expected (although core shipments disappointed). Yet the EURUSD has bounced a couple of big figures to above 1.11, apparently as China-weakness induced risk aversion and … More EUR support from China worries likely to prove temporary in most scenarios
The headlines from last week’s ECB press conference were dominated by the ECB’s €900m increase in Greek ELA, the potential for Greek bonds to be included in ECB QE and the apparent overall commitment to keep Greece in the Euro. But that seems to have allowed more important developments to have pass under the radar: … More ECB preparing to fight the FED and overly optimistic on lending dynamics reinforces likely EUR downsides
Sterling bulls will be cheering Mark Carney and David Miles this week, as their TSC comments and speeches have propelled GBP sharply higher, with EURGBP falling through the important 0.70 level. And this again looks to have been driven by diverging monetary policy expectations, as proxied by swap rate differentials, as expectations of the first … More MPC “feeling its way as it goes” to rate rises but looking pragmatic about GBP strength
Recent oil price falls (and prospects of more) combined with a sequence of disappointing real-side data, seeming to contradict Poloz’s “faster not larger” view, mean that a dovish Bank of Canada surprise seems likely on 15 July (when the Monetary Policy Report is released). Markets seem to be pricing in around a 50% chance of … More Risk-management Bank of Canada rate cut likely on 15 July
In a surprising turn of events the Greek government seems to have last night done a complete volte face on their negotiating position with the creditors. Indeed, the proposals look close to the Creditors’ ones from last week. And that’s the deal which the Greek electorate soundly rejected in Sunday’s referendum. That now seems like … More Greek caterpillars turns into butterfly overnight?
Exit polls suggest that the “no” campaign has scored a decisive victory in the Greek referendum, with it looking like over 60% of voters supporting Tsipras’ stance to reject the creditors’ terms. This is even though that offer has expired and Tsipras on Wednesday reportedly acceded to the majority of the creditors’ demands. The emergency … More Greek voters take the EUR into the unknown but probably down
Sterling has appreciated sharply in recent weeks, boosted by UK wages finally showing signs of life, more hawkish MPC comments and (over a longer window) ECB QE. Indeed, the GBP TWI is now nearly 3% above the levels which prompted Carney and Weale to jawbone sterling in March, causing a temporary dip. And the REER is only around 2% below pre-crisis highs. Moreover, relatively healthy UK prospects and potential rate hike votes as August mean that the risks are skewed to further GBP appreciation, supported by prospective policy differentials and possible safe-haven flows. While sterling’s elevated level increases the chances of further MPC verbal intervention (potentially building on Andy Haldane’s comments on Tuesday) several considerations mean this isn’t inevitable. MPC may well conclude that, when analysed in the round, the underlying cause of the GBP rise could be beneficial for the UK. They should also become more tolerant of GBP strength as worries about downside inflation risks continue receding and should attach more importance to GBPUSD than its 18% TWI weight. And they may worry about the effectiveness of verbal interventions in an environment of UK relative outperformance. “Risk management” monetary strategy considerations mean that they may try to slow GBP’s rise, aiming to spread the price level impact over a longer window and thereby ameliorating downside inflation risks, by continuing to stress that the tightening cycle will be slow and limited and try to distance themselves from the FOMC to remain in the dovish central bank peleton for as long as possible. But I suspect that they are likely to be pragmatic about further gradual GBP rise, accepting it as a corollary of the UK’s relatively strong economic performance. … More MPC and sterling’s rise: fear of floating or patient pragmatism?