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 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 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?
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
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
Today’s minutes signified the MPC in ‘wait and see’ mode but with a mildly hawkish tinge of (again) downplaying China risks, re-iterating the strong underlying UK domestic position and nuancing recent initially apparently negative labour market developments. This disappointed some market hopes of an MPC volte face and generated a small GBP bounceback. There seem … More MPC sticks to optimistic script: GBP prospects depend on risk appetite
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?