02 Feb 2018
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BoE POLICY OUTLOOK BoE Gov' Carney revised his guidance (in Jun) via a significant alteration to his Mansion House narrative - the turn on a sixpence. Since, a slight walk back and via Broadbent's guidance the tool low UK rates structure will probably stay in place until Nov. Carney's track record of trying too hard to fine-tune expectations, and unlike his US CB counterpart hasn't mastered the art (or had the experience) of warming markets up for big policy changes. Chief economist, Haldane, struck a more definitive note as a previous dove now turned. However, the forum in Sintra put 2017 tightening on the table, hitherto wasn't seen until 2019 (post Brexit). Voting dynamics now are interesting for Aug 'super-meeting', McCafferty and Saunders are likely to cast a similar vote in Aug, but now Haldane could make up for now left Forbes (dramatically hawkish in her final speech) - who is actually replaced by the relatively unknown newcomer Tenreyro. The newby heralds from the LSE and she has held dovish views before and was anti-Brexit. Irrespective of another 5-3 steady vote, risk/reward favours curve-steepening as the odds of moves in Aug and Nov have soared. While Aug is just 23%, Nov has crept over 50%. Implied probabilities should increase further as meetings draw nearer especially if data is aligned. We maintain our (Jun 23rd) shout for the 10-year to stay over 1.30% and can't see much to stand in the way of 1.50% in Q4.
What to look for in August's guidance:
In Jun minutes. policy makers stated that growth could be revised up (Q2 was to 0.3% q/q vs 0.2%) on brighter export surveys/investment intentions running above average. Acknowledged 'surprise' low wages given historic norms and inflation to come, over 3% (though in Jun retreated to 2.6% from 2.9%) and a view that continued employment growth could suggest spare capacity and inflation tolerance is being eroded faster - Carney also admitted this and we also remember his line that Brexit didn't tie the MPC's hands. 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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