02 Feb 2018
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BoE POLICY OUTLOOK Despite the BoE Gov's dovish Mansion House blind-sided guidance, we maintain our view that the UK rates structure is too low/benign. Over the past few days, there has been further MPC vindication for our more bearish view on rates/yield move. Following the '5-3' vote, comments in successive days (via Forbes and most notably Haldane) reveal policy is not the firm hold for ca 2 years as many/most thought prior to the Jun meeting. Gov Carney's Mansion House guidance has been reversed (deja vu vs his 2015 guidance) as the BoE's chief economist, Haldane, who possibly carries more clout vs other MPC members apart from the Gov) has left his mark on sentiment. McCafferty and Saunders are likely to cast a similar vote in Aug, but obviously Forbes (dramatically hawkish in her final speech) is replaced by the relatively unknown newcomer Tenreyro.What we do know about the newby; heralds from the LSE and she has held dovish views before and was anti-Brexit). Despite, risk/reward favours the 1.20% yield will be seen soon despite the front-end re-calibrating faster the possibility of a 2017 move irrespective of Carney's no tightening not on the/his radar.
The Jun mins macro rationale was somewhat more positive vs recent releases. Q1 GDP is expected to be revised up to 0.3% (looked suspect at the time) with further improvement in Q2, to 0.4% q/q. The MPC cited export surveys/investment intentions running above average, and acknowledged 'surprise' about low wages given historic norms. More inflation to come is a gimme, over 3% (already 2.9%) and a view that continued employment growth could suggest spare capacity and inflation tolerance is being eroded. In the prev QIR/mins combo (May), the policy makers said that tighter policy (vs current flat/shallow curve implies) was needed, but there was no explicit view on the timing. The Gov said Brexit didn't tie the MPC's hands. All told, dynamics should warrant a further steepening in the curve to more familiar territory, ie 2/10 spread to ca 130 bps,.
BANK RATE 0.25%, LAST MOVE -25 BP AUG 2016, NEXT MEET AUG 3 2017
IGM FX and Rates, IGM Credit
By Marcus Dewsnap 20 Nov 2017
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