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 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?
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?
Financial markets remain sceptical about further US rates rises heading into the tomorrow’s FOMC announcement. Less than one Fed rate increase in 2016 is fully priced, although the current 80% probability contrasts with only 10% a few weeks ago, whereas in December the Fed signalled four rate hikes in 2016. While a rate increase this … More Yellen to cautiously leave door open to June hike
The Fed’s dovish hold decision on Thursday set the cat amongst the pigeons in fixed income markets and sharply highlighted the challenges facing the world’s central banks given that: (i) the post-crisis EM debt boom encouraged by advanced economies’ QE policies – BIS report that USD-denominated loans to EMs have doubled to $3 trillion since … More Dovish Fed highlights challenges facing central banks, volatility spike could only be delayed
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?
News about the Greek negotiations has steadily deteriorated, culminating in Monday’s emergency summit (although the agony could conceivably be extended until 25-26 June Heads of States of the Union meeting). Yet at the same time the euro has been flat to rising: EURUSD is up nearly 3% on the month and 0.6% last week despite … More Why has the Euro been so resilient in the face of the growing Greek crisis? Where from here?