This piece argues that last week’s susprising-hawkish MPC vote and minutes do not represent a dramatic change in the picture for UK monetary policy. The limits to the MPC approach of looking through temporarily above-target inflation, driven by sterling’s post-referendum depreciation, are further from being reached than the minutes-related headlines suggest. So the limited rebounds … More Fade hawkish MPC minutes: contrary to MPC three judgements plus downside risks to UK consumption & net exports
This piece previews Thursday’s Bank of England Feburary Inflation Report and MPC minutes, where the key issues will be: (i) how much longer can consumption continue to be the single engine generating UK growth?; and (ii) MPC remain tolerant of prospective above-target inflation? The main points are: MPC will as expected by the market undoubtedly … More February Inflation Report Preview: Focus on Consumers and Inflation Expectations
Recent positive UK data surprises have caused economists to revise up UK growth forecasts and BoE Governor Carney recently hinted that the February Inflation Report would follow suit. Despite that, my argument from last October that UK net exports were likely to disappoint, even with sterling’s sharp depreciation, has proved accurate thus far (Q3 UK … More Poor UK Net Export-Inflation Tradeoffs Following Sterling’s Depreciation
I know I’m unloveable, you don’t have to tell me Oh, message received loud and clear, loud and clear The Smiths, Unloveable A month ago I argued (see here) that better near-term UK activity data shouldn’t be interpreted as showing that the UK was out of the woods in it’s difficult Brexit journey. Rather, I … More Sterling becomes unlovable on medium-term Brexit macro worries: further weakness likely
This mornings’ substantially better than expected UK manufacturing PMI release – rising to an 10-month high of 53.3 in August, versus market expectations of a smaller bounce to 49.0 after July’s 48.3 – has generated substantial market commentary. The broad-based nature of the bounceback was notable, with rebounds in both the output and new orders balances. … More Pleasantly-surprising manufacturing PMI doesn’t mean the UK’s out of the Brexit woods
This post previews Thursday’s MPC decision and discusses prospects for sterling. The main points are: (i) markets are under-pricing the chances of MPC rate cuts on Thursday and, especially, in August/November. A full 25bp rate cut is not priced by end-year despite Carney’s strong indication of action during the summer. Moreover, immediate action would usefully support … More Markets under-pricing post-Brexit MPC easing: further £ falls as economic weakness trumps recent reduced political uncertainty
This post discusses the increasingly global financial market “safe haven” impacts of rising Brexit uncertainties, and previews this week’s BoE, Fed and BoJ policy meetings (which will impact market tone). The main points are: Previous financial market complacency about Brexit risks (see here) has been replaced by more generalised “safe haven” asset prices impacts, as … More Brexit safe haven impacts turn global: Fed and BoJ to take note
This post considers whether sterling’s post-April rally represents an overshoot and dissects the May Inflation Report’s treatment of Brexit-affected asset prices. The main points are: Sterling has, as I expected, continued to closely track betting market Brexit odds, recently down to the low-20%’s from over 40% in April, but has also been supported by the continued … More How fragile is sterling’s recent bounce? Should MPC have also adjusted OIS rates in May?
The following previews Thursday’s BoE May Inflation Report (IR) and MPC minutes. Overall MPC seems unlikely to give a strong policy steer, given the proximity of the EU referendum vote. So rate and FX market impacts are likely to be limited – although probably dovish at the margin (and perhaps a bigger FX impact) despite … More MPC Preview: detailing Brexit uncertainty impacts, downplaying forecast inflation overshoot
Tuesday’s IMF warning of the adverse (global) impacts of a Brexit vote, with some effects already apparent, follows concerns in the March MPC minutes (which seem likely to be amplified in Thursday’s April MPC minutes). Unfortunately, neither provided any specific evidence. This post fills that gap, detailing the macro-financial impacts evident thus far, drawing on … More Tracking the macro-financial impacts of Brexit uncertainties: Killing the goose that lays the golden eggs?
Sterling has, as I previously anticipated here and here, continued to depreciate as Brexit uncertainties have become increasingly priced. The TWI is now down 11% since November (GBPJPY down over 19%) while implied volatilities and risk reversals have continued rising. But Brexit effects have more recently been reinforced by renewed concerns about the UK’s current … More Current account and growth concerns add to sterling’s Brexit worries: further weakness ahead
With everyone on tenterhooks about whether PM Cameron will manage to secure an acceptable deal at the EU summit, paving the way for a likely June UK EU referendum, I detail the impacts on markets thus far and the likely future propects. This follows my previous post where I correctly argued that growing Brexit uncertainties … More GBP: Riding Brexit Uncertainties
Concerns about the health of the global economy, originated by adverse economic news and policy fumbles in China but amplified by poor advanced economy data, have dominated financial markets in 2016. Sharp oil prices and equity falls have seen a fresh wave of central bank dovishness: see here for my ECB preview, a March Fed … More Which banking sectors are vulnerable to the third wave of the financial crisis?
This morning’s surprisingly-weak UK pay data provide further ammunition to the dovish MPC members and the growing sense that the Committee really is in no rush to start raising interest rates and want to try and differentiate themselves from the Fed. That said, the recent UK pay growth slowdown has limited implications for inflation under … More Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully
Tomorrow’s Bank of England “super Thursday” combination of MPC vote, MPC minutes and Inflation Report (IR) seems biased to being a little more “super” than in August, although my base case is for MPC to continue treading cautiously. In particular: • My modal case is for an unchanged 8-1 rate vote, but the risks are … More MPC Preview: Likely cautious rates pushback
Today’s minutes signified the MPC in ‘wait and see’ mode but with a mildly hawkish tinge of (again) downplaying China risks, re-iterating the strong underlying UK domestic position and nuancing recent initially apparently negative labour market developments. This disappointed some market hopes of an MPC volte face and generated a small GBP bounceback. There seem … More MPC sticks to optimistic script: GBP prospects depend on risk appetite
Today’s BoE data deluge has been interpreted by the market as a dovish event – GBPUSD declined 0.7% and 10 year gilts fell 6 basis points i.e. not huge moves, as per my preview. The market seems to have focussed on Weale’s surprising unchanged vote was (he’ll hopefully fill us in in a forthcoming speech, … More Was BoE Super Thursday really that dovish? Has MPC transparency really improved?
Tomorrow represents a landmark in BoE communication: the MPC decision, MPC minutes and August Inflation Report will be released simultaneously at 12 noon, with the IR press conference starting at 12.45. With a view to the deluge of information to process, I offer some views on what market participants should be paying watching out for, … More Bank of England Super Thursday: Three is the magic number for further GBP 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?
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