IGM Credit, IGM FX and Rates
03 Aug 2020
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BoE/UK INSIGHT The BoE/MPC left Bank rate steady at 0.25% at the conclusion of the Aug 'super meeting' by an expected 6-2 vote. There was about a 20% chance for 5-3 and some even calculated a 1 in 10 chance for a hike today via SONIA pricing after a firmer than expected CIPS services PMI print. However, for bears/hawks it wasn't to be this time round and following the QIR/Gov Carney presser it seems as if November will be highly unlikely as well. September will be a complete dead-rubber. The reaction said it all with the Pound off almost 1% as Gilt yields succumbed 5 bp (10 year settled well below 1.20% with 1.15% seen). The minutes weren't totally as dovish as some MPC members reckoned the Bank may need tighter policy vs the market's curve implication. However, this was ignored as downgraded forecasts and pre-Brexit caution was ramped up in the narrative. As well as lowered growth, weaker wage inflation was seen and capacity only eroded in 3 years time. QIR 2017 GDP was trimmed to 1.7% from 1.9%, and 2018 by a similar amount as well. The QIR also lowered its future wages forecast to 3% vs 3.5% in May. BoE's dissenters were Saunders and McCafferty (no change as before) and there was little in Carney's tone to suggest any U-turn or flip-flopping from the Gov as he asserted no timing about rate rises had been given, Instead, based on current market assumed rate paths for rates, the first hike will arrive in Q32018, and the 2nd move by H12020, though as noted the MPC didn't want to pin itself to the market's assumptions. On inflation, CPI Inflation in 1 year is seen at 2.58% (vs 2.64% in May) and is seen peaking at 3% in Oct 2017. CPI Inflation further out (in 2/3 years) is estimated to reach 2.19% and 2.22% resp (vs 2.20/2.26% seen in May resp). Overall, the QIR was broadly similar to May's version, but it seemed to have caught bears looking for a clearer heads up for tightening this year which seems a more remote chance unless there is super strong clarity of a smooth Brexit and data concurs. This look unlikely at this juncture, hence November hike chances (via WIRP) slumped to below 35% (vs ca 43% yest).
[BoE POLICY OUTLOOK . BANK RATE 0.25%, LAST MOVE -25 BP AUG 2016, NEXT MEET SEP 14 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