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 The main points are: Previous financial market complacency about Brexit risks (see here) has been replaced by more generalised “safe haven” asset prices impacts, as … More Brexit safe haven impacts turn global: Fed and BoJ to take note
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
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
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
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?
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 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
My accompanying post details how the return of EA deflation, EA inflation expectations are in the process of de-achoring plus deteriorating EA and foreign activity mean that the 10 March ECB meeting is shaping up to be make or break for EA prospects and ECB credibility. I argued that the likely downward revisions to the ECB’s … More Trading the ECB: limited EUR weakness and bund rally likely but risks
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!
Market hopes for a Plaza-type agreement at the 26-27 February G20 meeting in Shanghai 26-27 February, to help ameliorate the substantial issues facing the global economy and calm market volatility, have been growing. But I’m not expecting any really impactful policy announcements, much as I wasn’t expecting Yellen’s Congressional testimony to be a silver bullet … More G20 meeting: expectations of updated Plaza accord to be disappointed
With everyone on tenterhooks about whether PM Cameron will manage to secure an acceptable deal at the EU summit, paving the way for a likely June UK EU referendum, I detail the impacts on markets thus far and the likely future propects. This follows my previous post where I correctly argued that growing Brexit uncertainties … More GBP: Riding Brexit Uncertainties
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
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
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)
Concerns about the health of the global economy, originated by adverse economic news and policy fumbles in China but amplified by poor advanced economy data, have dominated financial markets in 2016. Sharp oil prices and equity falls have seen a fresh wave of central bank dovishness: see here for my ECB preview, a March Fed … More Which banking sectors are vulnerable to the third wave of the financial crisis?
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