This post argues that cyclical and structural factors represent headwinds to the hope that the UK is set to emulate the post-ERM depreciation period and enjoy a net exports bonanza in the wake of sterling’s recent sharp depreciation. The main points are: The post-ERM story is more nuanced than often reported. While UK nominal exports … More UK trade to party like it’s 1992? Watch out cyclical and structural headwinds
This post previews this week’s ECB policy meeting. The main points are: In July Draghi stressed that the ECB was open to all options on further easing, were watching emerging data closely and would use flexibility to meet their €80bn a month purchase target (they only managed €60.5bn in August). Several developments indicate that ending … More September ECB: 6-month QE extension justified, but risk of disappointment
This post previews Thursday’s key MPC policy decision, minutes and Inflation Report, in light of the continued deterioration of UK survey indicators and the MPC’s surprisingly-cautious approach three weeks ago (see here for my arguments for a confidence-boosting risk-management initial 25 cut). Overall, while a 25bp rate cut seems inevitable there’s some danger of MPC’s overall package … More MPC: Immediate risk-management “sledgehammer” easing justified, although (tweaked) QE extension could be delayed until November so risk of £ short squeeze
This post examines the factors driving FX markets and previews this week’s Fed and BoJ decisions. The main points are: • Calmer market conditions, driven by a continuation of the factors I discussed here, mean that G10 and EM FX volatilty has fallen thereby further raising the attractiveness of FX carry trades. This seems likely … More FX focus: Fed probably won’t rock the (carry) boat, BoJ could add tailwind
This post details my expectations for Thursday’s ECB meeting, dissects the evolving macro-financial situation facing the ECB and provides some interest rate and FX views. The main points are: • Draghi will likely robustly defend the easing measures (recent German criticism), probably referencing the already-apparent positive impact on market corporate borrowing conditions. • He will … More ECB preview: further details in the (nervous) waiting room
This post dissects the recent rally in risk assets and examines the prospects going forward. The main points are: • A combination of (inter-related) factors have supported risk appetite: (i) The Fed’s suprising dovishness on 16 March, with apparent more focus on the international impacts of its actions and greater willingness to let inflation run … More Markets after the Fed: Carry on?
The 10 March ECB meeting is shaping up to be make or break for EA prospects and ECB credibility as well as being very important for overall market directions. Deflation has returned to the EA, pipeline inflation pressures are weak and inflation expectations are in the process of de-achoring (with inflation breakevens’ previous links with … More ECB preview: Wonderstuff? Don’t let me down!
This note details my expectations for the latest Bank of England “super Thursday” as well as the (related) implications of Brexit uncertainties (“scary monsters”). The latter have thus far been an elephant in the room in MPC discussions, notwithstanding Carney’s recent comment about funding the UK large current account in Febrile market conditions. The main … More BoE: Scary Monsters (and elephants in the room)
This will be a key week for determining the strength of the ECB-Fed policy divergence theme (“divergence 2.0”) which has been increasingly occupying markets in recent weeks. While Thursday’s much-awaited ECB meeting tops the billing, it will be sandwiched by two high-profile appearances by Yellen (economic outlook speech on Wednesday, address to the congressional Joint … More Policy Divergence 2.0 increasingly priced but further limited FX action possible