Fade hawkish MPC minutes: contrary to MPC three judgements plus downside risks to UK consumption & net exports

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

Trump’s impossible trinity likely resolved by dollar strength but potential bumpy ride

This piece discusses dollar propsects in light of it’s 2017 retracement and the impossible trinity of fiscal expansion, independent US monetary policy and dollar jawboning which the Trump adminstration seems to be pursuing (alongside prospects for US and foreign monetary policy).  If Trump eventually delivers a substantial fiscal expansion the impossible trinity seems most likely … More Trump’s impossible trinity likely resolved by dollar strength but potential bumpy ride

February Inflation Report Preview: Focus on Consumers and Inflation Expectations

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

Poor UK Net Export-Inflation Tradeoffs Following Sterling’s Depreciation

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

Trump Towers over €Area political risks: periphery yields and € pressurised

This piece considers the macro-financial implications of the Euro Area’s political risks, in greater market focus following Donald Trump’s election win (which I argued was underpriced), focussing on the 4 December Italian Consitutional Referendum.  Overall, further politics-driven market volatility seems likely, even if political concerns eventually dissipate. The main points are: Financial markets’ previous under-pricing of … More Trump Towers over €Area political risks: periphery yields and € pressurised

Could lightning strike twice? FX impacts of US election cliffhanger: Trump win underpriced

This report analyses the likely FX market implications of the too close to call US election. Overall it seems that markets could, like the Brexit vote, be under-pricing lightening striking. But the dollar could rise irrespective of the result, although more immediately/obviously following a Clinton win, with vulnerable risk-positive currencies likely being most sensitive to … More Could lightning strike twice? FX impacts of US election cliffhanger: Trump win underpriced

Sterling becomes unlovable on medium-term Brexit macro worries: further weakness likely

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

Yen strength likely with further BoJ ill communication, asymmetric risks

This post previews Wednesday’s highly-uncertain but very important Bank of Japan policy meeting, featuring the Comprehensive Assessment of monetary policy. Overall, there’s a strong risk of BoJ disappointing dovish market expectations thereby generating Yen upside and a bond market sell-off (although the FOMC decision will also impact) and smaller market moves are likely should the BoJ try to … More Yen strength likely with further BoJ ill communication, asymmetric risks

Pleasantly-surprising manufacturing PMI doesn’t mean the UK’s out of the Brexit woods

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

Markets under-pricing post-Brexit MPC easing: further £ falls as economic weakness trumps recent reduced political uncertainty

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

EU Referendum: hoping for “remain” but markets overly sanguine

Financial markets approach tomorrow’s UK EU referendum vote apparently pretty confident that “remain” will prevail.  While I’m hopeful of a “remain” vote – I’m one of the 90%-plus off economists who firmly think that Brexit would generate significant UK/international macro costs and might not end up solving immigration concerns (if single market access is to … More EU Referendum: hoping for “remain” but markets overly sanguine

MPC Preview: detailing Brexit uncertainty impacts, downplaying forecast inflation overshoot

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

Tracking the macro-financial impacts of Brexit uncertainties: Killing the goose that lays the golden eggs?

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?

Current account and growth concerns add to sterling’s Brexit worries: further weakness ahead

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

Draghi fires credit-easing bazooka but undermines market impact

The ECB today vindicated my arguments for an aggressive broad monetary policy easing: rate cuts, QE expansion and credit easing at very attractive rates exceeded market expectations but were more in line with my views (I’d hoped for a 20bp deposit rate cut, accompanied by tiering of interest rates, rather than the whole rate corridor … More Draghi fires credit-easing bazooka but undermines market impact

Yellen will likely find it difficult to calm the sum of the markets fears: fixed income rally and JPY strength to extend

Fed Chair Yellen’s semi-annual testimony occurs at a time of considerable uncertainty about the global economy and substantial financial market volatility.  Oil price and equity price falls, particularly bank stocks, have dominated recent moves as global government bonds have fallen up to 60bp since end-2016 (with 10 year JGBs turning notably negative) and the dollar … More Yellen will likely find it difficult to calm the sum of the markets fears: fixed income rally and JPY strength to extend

ECB under pressure from oil and EUR strength

The early 2016 China-induced financial market volatility, including oil prices hitting twelve-year lows below $30 and sharp equity price falls, reinforces my existing bias to eventual further ECB easing in 2016 (alongside other central banks becoming more dovish e.g. Carney’s comments today,  Bullard’s recent concerns about US inflation expectations and others like the Riksbank biased … More ECB under pressure from oil and EUR strength

Don’t look back in anger: from ECB to Fed via oil weakness

With a week having passed since the ECB’s surprising “hawkish ease” it’s useful to take stock of what it all means for ECB monetary policy, the EA economy and financial markets.  And how this fits into an environment featuring an oil price collapse (and commodity weakness more generally) together with anticipation of the likely 16 … More Don’t look back in anger: from ECB to Fed via oil weakness

ECB to deliver easing despite easing financial conditions: listen to Draghi and Praet

I argue below that the ECB seems likely to at least meet market expectations for easing on 3 December, despite EA financial conditions having recently eased. While tightening financial conditions contributed to the ECB turning dovish, the reverse doesn’t apply. The fragile EA macro situation means that ECB can’t take the risk of the recent … More ECB to deliver easing despite easing financial conditions: listen to Draghi and Praet