IGM Credit, IGM FX and Rates
03 Aug 2020
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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 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