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

Pleasantly-surprising manufacturing PMI doesn’t mean the UK’s out of the Brexit woods

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

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 The main points are: Previous financial market complacency about Brexit risks (see here) has been replaced by more generalised “safe haven” asset prices impacts, as … More Brexit safe haven impacts turn global: Fed and BoJ to take note

How fragile is sterling’s recent bounce? Should MPC have also adjusted OIS rates in May?

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?

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

MPC Preview: detailing Brexit uncertainty impacts, downplaying forecast inflation overshoot

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

Tracking the macro-financial impacts of Brexit uncertainties: Killing the goose that lays the golden eggs?

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?

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

Trading the ECB: limited EUR weakness and bund rally likely but risks

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

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

Policy Divergence 2.0 increasingly priced but further limited FX action possible

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

Riksbank after the ECB: Likely QE extension but rate cut not a done deal (SEK weakest if it eventuates)

One of the major impacts of Draghi’s very strong December easing hints last week (see here) is to pass the easing baton back to other previously-dovish central banks (in addition to capping nascent EUR appreciation, being bullish for EA government bonds with likely peripheral spread narrowing and potentially supporting the recent EM FX rebound). Here … More Riksbank after the ECB: Likely QE extension but rate cut not a done deal (SEK weakest if it eventuates)

USD and Fed Rate Hikes: More Complicated Than Simply ‘buy the rumour, sell the fact’

Fed comments at Jackson Hole indicate that they are in wait and see mode about both domestic data and financial market/China stresses. But for now they’re apparently sticking to their 2015 liftoff plan and not ruling out a September rate hike. Specifically, Stanley Fischer argued “Given the apparent stability of inflation expectations, there is good … More USD and Fed Rate Hikes: More Complicated Than Simply ‘buy the rumour, sell the fact’

FOMC likely to keep options open and acknowledge commodity weakness: limited USD downside possible

Tomorrow’s FOMC press release is being eagerly anticipated by market participants, keen to see whether FOMC will provide more definitive guidance about whether Fed liftoff will start in September (most economists’ favoured date) or December (more consistent with market pricing). Despite such hopes, I suspect that the FOMC press release will likely contain only relatively … More FOMC likely to keep options open and acknowledge commodity weakness: limited USD downside possible