IGM Credit, IGM FX and Rates
03 Aug 2020
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BoE POLICY OUTLOOK Via the May QIR/mins combo, the policy makers said that tighter policy vs the current (flat/shallow/) curve implies is needed, but once again there was no explicit view on the timing. Mixed messages seem the norm, Carney went as far to say that Brexit doesn't tie the hands of the MPC, but we think few took him to his word on that. The BoE reckons a 'smoother' Brexit will transmit to quicker rate increases, this one of the more obvious messages. The BoE also noted that the 1st rate increase isn't fully reflected until Q4 2019 (vs Q1 2019 prior) and this looks completely complacent on the risk of an earlier move. The next meeting takes place after the general election, and while not a 'super-meeting', it may remove some of the uncertainty factor, albeit fractionally. The sole hawk, Forbes, stuck to her guns in being the sole hawk (again) - worries about inflation pushed to uncomfortable levels but she remained the lone voice - May also her final meeting. As widely expected the policy-makers downgraded inflation from 1-3 years, most notably in 2 years, to 2.26% (from 2.56% in Feb) - on Pound's rebound with smaller deviation in 1 and 3 year bands. The most interesting takeaway, via the minutes, is modest pay growth near-term will pick up significantly - though Carney later said it wouldn't be particularly fast. All told, our baseline view is that the UK 10-year yield won't hang about for clearer guidance, or Brexit, or the ECB for that matter and once the tightening process begins, the BoE may have fallen behind the curve (waiting for politics to unravel) hence the long-end should price in a steeper trajectory. We plot a slow, gradual move to 1.5% post election. If a shock no Tory majority, 1.7-2% on too much fiscal expansion. Other metrrics, unemployment will fall further to 4.6% in 2 years, 2018-19 GDP f/c revised up. Alvin Baker
BANK RATE 0.25%, LAST MOVE -25 BP AUG 2016, NEXT MEET JUN 15 2017
IGM Credit, IGM FX and Rates
By Tim Cheung 03 Aug 2020
Xinhua News Agency reported the Politburo held a meeting on the economy on 30 July (Thursday). The CCP also held a meeting with non-CCP political parties and non-political representatives. President Xi chaired both meetings. Compared to the meeting held on 17 April, we note some changes in wording were made to the remarks on monetary and fiscal policies in the 30 July meeting. 30 July meeting (as per Xinhua News Agency): - "While requiring full implementation of macro policies, the meeting called for pursuing a more proactive and effective fiscal policy that delivers solid outcomes, and a more flexible and appropriate monetary policy that targets sound results, according to the meeting". 17 April Meeting (as per Xinhua News Agency): - "Monetary policies should be more flexible and balanced and instruments such as reserve requirement ratio cuts, interest rate reductions and reloans should be fully leveraged to ensure reasonable and sufficient liquidity and a lower interest rate in the loan market, the meeting said, stressing the need to channel capital into the real economy, especially medium-sized, small and micro enterprises".
Topics Industry News