On Thursday the ECB will likely only tinker around the edges of their commentary and forward guidance (see red entries in table below) – such a dovish press conference will likely generate a small euro depreciation and fall and €Area yields. Specifically, the ECB will likely: (i) acknowledge the improving growth outlook by moving to … More June ECB Preview: Dovish Tinkering
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 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
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
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
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
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 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
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 Janet Yellen’s 26 August Jackson Hole appearance, and the likely market implications. The main points are: Recent FOMC mixed messages – Dudley’s/Fisher’s recent small hawkish drift versus Williamson’s/Bullard’s dovishness, reflecting the difficult issues confronting the Fed – underpin market confusion about Fed policy. Neverthless, markets remain sceptical about the likelihood of further US … More Yellen at Jackson Hole: Don’t Rock the Boat?
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
Margaret Thatcher’s 1979 election victory speech famously quoted St Francis of Assisi: “Where there is discord may we bring harmony, where there is error may we bring truth, where there is doubt may we bring faith, and where there is despair may we bring hope.” The decision to hold a UK EU membership referendum has … More Brexit vote: where there is harmony may we bring discord (global concerns, UK recession, MPC rate cuts and further £ falls)
Today’s Brexit vote has shaken global financial markets (£/$ touching 30-year lows, safe haven assets like bunds supported while equities have tanked), prompted PM Cameron’s (impending) resignation and caused Mark Carney to stress that £250bn of liquidity is available and appear more open to further monetary easing (backing a little away from the previous “we could … More Brexit signs were there to see if financial markets had been less myopic
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
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?
This post dissects the Euro Area macro-financial and policy situation in advance of the 2 June ECB meeting. The main points are: Draghi will likely focus on the positive prospective effects of their imminent credit bazookas (TLTRO II and CSPP) including highlighting the positive anticipatory impact of CSPP on bond issuance and spreads. That said, … More ECB preview: Awaiting the credit easing bazooka but several dark clouds persist
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