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

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

FOMC Preview: Cautious Yellen likely aiming to limit market impact of rate hike, but watch term premia

This post summarises my views on Wednesday’s much-anticipated US Federal Reserve meeting and potential 2017 trends.  The main points are: A 25bp Fed rate rate hike is fully priced by Fed Funds futures – given the improved US macro situation, Trump’s prospective (but uncertain) fiscal stimulus and strong signals from Fed Governors. So the market … More FOMC Preview: Cautious Yellen likely aiming to limit market impact of rate hike, but watch term premia

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

Brexit vote: where there is harmony may we bring discord (global concerns, UK recession, MPC rate cuts and further £ falls)

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)

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

Brexit safe haven impacts turn global: Fed and BoJ to take note

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

ECB preview: Awaiting the credit easing bazooka but several dark clouds persist

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

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

Yellen to cautiously leave door open to June hike

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

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 confronted by tighter financial conditions, poor data and politician pressures

Today’s headlines have been dominated by the 9-0 MPC decision (which I correctly anticipated, together with the EURGBP rise, see here).  But financial market developments over the past couple of days have also made for some very uncomfortable reading for the ECB – financial conditions have once again tightened despite Draghi’s strong hints at further … More ECB confronted by tighter financial conditions, poor data and politician pressures

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

Confident Fed equates to further (limited) Treasury sell-off and USD upside but watch for China and risk aversion

Last night’s Fed rate hike, with more balanced that expected accompanying material, seems to have given the green light to further limited (short-end US) yield rises and consequent USD dollar strength over the next few months. The latter will likely supported by gradual increased pricing of policy divergences – the Fed seems confident in anticipating … More Confident Fed equates to further (limited) Treasury sell-off and USD upside but watch for China and risk aversion

Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully

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