Will the Bank of England actually raise rates in November?

• GBPUSD hits highest in a month ahead of tomorrow’s CPI inflation print
• Hike in November fully priced by markets…
• But will the MPC hawks have enough votes?

Recent commentary from senior Bank of England officials indicates the Monetary Policy Committee (MPC) will raise interest rates when it next meets in November, barely over two weeks from now. Market positioning has also shifted significantly in recent weeks from a single hike next year to one this year and at least two next, with the base rate expected to hit 1% by August.

BoE members have had numerous occasions to push back against market expectations and have led traders towards a November hike as being the most likely outcome. Over the weekend governor Andrew Bailey stressed that the Bank of England “will have to act” to counter inflation. That’s one for team sticky – which if you are a regular reader, you will know I’ve been saying all along. “That’s why we, at the Bank of England, have signalled, and this is another such signal, that we will have to act,” Bailey said. “But, of course, that action comes in our monetary policy meetings.” Ah, but which policy meeting did he mean? Did he mean November – the market certainly thinks so, and there has been no push back on that. Failure to raise rates next month risks Bailey becoming the Old Lady’s second unreliable boyfriend and the inevitable disapprobation for her taste in gentlemen.

Inflation problems

Inflation expectations in the UK increased to 4.1% in September from 3.1% in August of 2021. Actual inflation is also rising quickly. The latest Consumer Prices Index (CPI) rose by 3.2% in the 12 months to August 2021, up from 2% in July. The increase of 1.2 percentage points is the largest ever recorded increase in the CPI series, which began in January 1997. Soaring energy costs are a big factor, but the whole basket is seeing upwards pressure.

The reading of tomorrow’s CPI print is important. Another hot reading underlines the sense of urgency at the BoE. Cooler raises concerns that officials have got their communication muddled. It is once again expected to hit 3.2%.

Team sticky is winning for now but team transient have some cards up their sleeves. For instance, headline inflation would have been 0.3 percentage points lower in August 2021 without the Eat Out to Help Out discounts in August 2020. Demand destruction from higher prices may also start to feed into lower run rates for inflation.

Yield curve inversion

Markets are pricing in a fairly aggressive tightening cycle by the BoE. 2yr gilt yields have hit a two-and-a-half year high. This could be premature – the MPC may not be as hawkish as recent signals indicate, but if it’s correct then the market is also anticipating that the Bank would quickly need to reverse its actions. Forwards and implied interest rate expectations point to inversion – higher rates at the front end, lower further out. This only implies the market believes the Bank would be making a ‘policy mistake’ by hiking prematurely. Others would point out that taming inflation is its core mandate.

Certainly, the BoE like all central bank is dealing with something rather new: a supply shock. Central banks’ policy toolkits are based around levers to drive demand when it is low. They cannot fix supply crunches and imbalances in the economy very easily by stimulating demand. Nevertheless, the Bank is clearly mindful that allowing inflation to run rampant would a) destroy its credibility and b) allow longer-term inflation expectations to become de-anchored. If supply-side worries are longer lasting than first thought, and demand stays robust, it seems prudent for the MPC to use what tools it has to lean on inflation. What’s clear is that the intense debate around the recent comments and change in market expectations shows the Bank is not doing a particularly good job of communicating its position. We may be left in a position where the MPC hikes a couple of times and then has to dial it back, which risks its credibility – albeit whether more or less than it would by allowing inflation expectations off the leash is an open question.

The last meeting

• MPC voted 7-2 to maintain QE, unanimous on rates
• Ramsden joins Saunders in voting to scale back the QE programme to £840bn, ending it immediately
• CPI inflation is expected to rise further in the near term, to slightly above 4% in 2021 Q4 – and the BoE signalled greater risk it would be above target for most of 2022
• Overall, Bank staff had revised down their expectations for 2021 Q3 GDP growth from 2.9% at the time of the August Report to 2.1%, in part reflecting the emergence of some supply constraints on output
• Shift in forward guidance: MPC noted ‘some developments … [since the August Monetary Policy Report] … appear to have strengthened’ the case for tightening monetary policy.
• Rate hikes could come early, even before end of QE: “All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme.”

Doves vs Hawks

But will it go for the hike? The MPC is relatively evenly split in terms of hawks and doves, so it is not abundantly clear if the recent messaging from some members – albeit including the governor – matches with the votes.

Bailey has sounded hawkish, and we know Ramsden and Saunders are itching to act. Huw Pill, the new chief economist replacing Andy Haldane has also sounded hawkish, though less so than his predecessor.

Commenting after UK inflation expectations hit 4% for the first time since 2008, he said: “The rise in wholesale gas prices threatens to raise retail energy costs next year, sustaining CPI inflation rates above 4 per cent into 2022 second quarter.” We place him in the ‘leaning hawkish’ camp.

On the dovish side, Silvana Tenreyro is highly unlikely to vote for a hike next month, calling rate rises to counter inflation ‘self-defeating’.

Deputy Governor Broadbent said in July that he saw reasons for the inflation tide to ebb. The spike in energy prices since then could lead him to change his mind but for now, we place in the ‘leaning dovish’ camp,

Rate-setter Haskel said in May he’s not worried by inflation, and in July said there was no need to reduce stimulus in the foreseeable future. He goes in the Dovish camp with Catherine Mann, who said last week that she can hold off from raising rates since markets are doing some of the tightening already. “There’s a lot of endogenous tightening of financial conditions already in train in the UK. That means that I can wait on active tightening through a Bank Rate rise,” she said.

That leaves Jon Cunliffe somewhat the swing voter. In July he stressed that inflation was a bump in the road to recovery. We look to see whether the recent spike in inflation and inflation expectations has nudged the likes of Cunliffe, Pill and even Broadbent to move to the Hawkish camp. It seems unlikely that governor Bailey would have pointed the market towards quicker hikes if he did already have a feeling for the MPC’s views on the matter.

Dovish  Leaning dovish  Centre  Leaning hawkish  Hawkish 
Tenreyro

Mann

Haskel

Broadbent Cunliffe Pill Saunders

Ramsden

Bailey

Charts

GBPUSD: The hawkishness from policymakers and market repricing for hikes has supported £, though we do note some noticeable dollar weakness in Tuesday’s session that is flattering the view that it’s all BoE driven. Cable breaks new highs ahead of CPI, above 1.3820 to test the 50% retracement off the May peak. Bullish MACD crossover still in play, but starting to look a tad extended.

GBPUSD Chart 19.10.2021

EURGBP Gains capped with a stronger EUR today, but has made a fresh 18-month high. BoE racing to hike against a much more dovish ECB ought to be positive, but yield curve inversion highlights the dangers of viewing FX trades purely from a CB tightening/loosening point of view.

EURUSD 19.10.2021

Yields and central banks on the move

Central banks on the move: Norway’s central bank became the first in the G10 to raise rates after the pandemic, Turkey’s central bank – an outlier – lowered rates (to 18%), whilst the Bank of England and Federal Reserve sat on their hands but indicated they too are about to start moving. Yields are on the move too as bonds sell off on tightening expectations. Something has clearly changed and positioning on rates is shifting. US 10yr yields jumped to 1.44%, posting their biggest one-day gain since March, whilst 30yr bond yields jumped the most in a single day since March 2020. European bond yields are also marching higher.

Although the Fed and BoE remain fairly cautious and the dogma of transitory inflation persists, they’re starting to move beyond pandemic-era emergency mode. Investors see this and are moving too – rates steepening again as they did earlier this year. As we noted yesterday morning, whilst the initial reaction to the Fed’s announcement on Wednesday saw the yield curve flatten, the steepening as the long end picks up is the natural response to the Fed turning more hawkish – it was not just earlier for lift-off but also more hikes in 2023/24. Investors are also betting on higher inflation for longer. US inflation expectations ticked higher too, hitting a month high, helping gold to fend off the move in nominal rates to trade around $1,750, having put in a near-term low at $1,737. The dollar also made a strong move lower yesterday, adding further support.

Stocks rallied on Wall Street, mega cap growth just underperforming a bit as yields rose, helping financials do well. The S&P 500 recovered the 50-day SMA at 4,437 and closed above at 4,448.98. Small caps outperformed with the Russell 2000 picking up almost 2% as reflation trade thinking resurfaced. Energy was the top performer on the S&P 500 again as crude oil (Nov) broke through $73, whilst Brent is testing a 3-year high. Natural gas is back above $5 this morning.

Stocks trade weaker in the early part of the session in Europe as investors digest the selloff in global bonds and look ahead to the uncertainty of the German election on Sunday, which may be a factor for the DAX today. Helen Thomas of BlondeMoney has an excellent preview on the topic for us. The FTSE 100 sits around 7,050, slap in the middle of the range it’s treaded since April. AstraZeneca shares rose 3% as its Lynparza cancer drug performed well in its PROpel Phase III trials. Shares in Hong Kong fell over 1% with Evergrande down 13% as it apparently missed a deadline for an interest payment of $83.5m on an offshore bond.

The US dollar is drifting higher this morning after yesterday’s selloff with near-term momentum positive having briefly hit its highest since Aug 20th. Tweeted yesterday about topping pattern for USD and yesterday’s (just about) outside day candle could be the reversal signal.

Dollar Index 24.09.2021

GBPUSD is holding most of yesterday’s gains but has just pared back a touch to trade at 1.3710 after hitting 1.3750.

GBPUSD Chart 24.09.2021

Sterling HOD, FTSE weaker as markets digest slightly hawkish BoE

After a bit of time to digest the Bank of England decision, it looks to have provided that hawkish pivot we’d anticipated. But I would not say it’s enough to really tell the market that it will fulfil its mandate to keep inflation in check and ensure longer-term inflation expectations remain in check. A missed opportunity, I would say, to get a better grip on inflation expectations.

Key points

• MPC votes 7-2 to maintain QE, unanimous on rates
• Ramsden joins Saunders in voting to scale back the QE programme to £840bn, ending it immediately
• CPI inflation is expected to rise further in the near term, to slightly above 4% in 2021 Q4 – and the BoE signalled greater risk it would be above target for most of 2022
• Overall, Bank staff had revised down their expectations for 2021 Q3 GDP growth from 2.9% at the time of the August Report to 2.1%, in part reflecting the emergence of some supply constraints on output
• Shift in forward guidance: MPC noted ‘some developments … [since the August Monetary Policy Report] … appear to have strengthened’ the case for tightening monetary policy.
• Rate hikes could come early, even before end of QE: “All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme.”

Market reaction thus far

• GBPUSD has rallied to highest since Monday off a month low and is looking to hold above 1.37, having risen one big figure today. Needs 1.3740 for bulls to regain control, big test here with trend support recently tested at the neckline. Question is this mildly hawkish pivot is enough to put the floor under GBP. I would still argue for softer dollar into year end allow GBP (and EUR) some scope to strengthen, particularly if the BoE is progressing towards raising rates sooner than previously thought.
• That sterling strength sent the FTSE 100 lower after a solid morning session, leaving the blue chips flat on the session, around 45pts off the highs of the day. Looking now for a lift from Wall St with US futures indicated higher: S&P 500 around 4420, Dow Jones at 34,460.
• 2yr gilt yields jumped to +0.3435% from around 0.28% earlier in the day as markets moved expectations for the first 15bps rate hike forward to Feb 2022.

GBPUSD chart 23.09.2021

Summary view

The BoE trying to tell what we already know without telling us what we already know; ie, that inflation is way stickier than they thought it would be. The BoE said “there are some signs that cost pressures may prove more persistent. Some financial market indicators of inflation expectations have risen somewhat”. Somewhat what? It’s all a bit wishy washy. The problem is the dogma of transient inflation is hard to shake without admitting that they were plain wrong on a very basic assessment of the economic outlook. “The committee’s central expectation continues to be that current elevated global cost pressures will prove transitory,” the statement from the BoE said.

Earlier, PMIs show across Europe and Britain growth momentum is waning, inflation is sticking. The UK composite PMI revealed further loss of growth momentum as output slowed to the weakest in 7 months, whilst the rate of input cost inflation accelerated and charges raised to the greatest extent on record.

Taken together with the PMIs this morning and the Fed last night we are presented with a very simple picture: growth is slowing, supply constraints are deepening, inflation is proving way more persistent than central banks anticipated. This could have important consequences for monetary policy going forward, but for now the CBs are still waiting it out and getting further behind the curve. A bitter pill today has been avoided, but the medicine required will be harder to swallow when it finally comes. Rates are going to need to rise to tame inflation.

Bank of England responds to hot inflation print

The Bank of England will need to respond to biggest jump in inflation on record when it convenes this week. Inflation accelerated to 3.2% in August from 2% in July, well above the central bank’s 2% target. Could this force the BoE to tighten monetary policy sooner than had been expected? A hawkish-sounding Bank of England would be a boost for sterling. In order to be hawkish enough to nudge sterling higher and show it’s prepared to kill inflation as required, the Bank probably ought to end QE now – as the now ex-MPC hawk Andy Haldane argued for last time around. There is a clear risk inflation will overshoot the 4% forecast, let alone the 2% goal. Unanchored inflation expectations are the worst possible outcome for a central bank they’ve been too slow to recognise the pandemic has completely changed the disinflationary world of 2008-2020. Hikes will be required too in the not too distant future and the bank should appreciate that a bitter pill now would be better than even harsher medicine later on. A jobs market with 1m vacancies does not suggest the UK economy is in trouble at the moment. Wage growth remains strong – albeit the picture is very complex due to furlough, the pandemic and base effects + inflation on real wages.

Does the bank go for a more hawkish signal? That is harder to say: it’s already well into a taper and markets anticipate the BoE will be raising rates 2-3 times over the next couple of years – does it need to do more than that? The question is whether the inflation ready has got the right kind of attention that it deserves or whether the BoE is ignoring the red flags. My own view, for what it’s worth, is that the Bank, just like the Fed, has allowed inflation overshoots to allow for the recovery, but it’s been too slow and too generous. Much like the response to the pandemic itself, the medicine (QE, ZIRP) being administered may be doing more harm (inflation) than good (growth, jobs).

La settimana che ci aspetta: La Fed è pronta ad annunciare il taglio degli acquisti?

Tutti gli occhi sono puntati sulla Federal Reserve, per vedere se sfrutterà l’incontro del FOMC di settembre che si terrà questa settimana per annunciare la tanto attesa riduzione degli acquisti di asset. Nel frattempo, l’elevata lettura dell’inflazione registrata la scorsa settimana farà riflettere la Banca d’Inghilterra sull’opportunità di orientarsi verso posizioni più aggressive.

La Fed annuncerà il taglio del Quantitative Easing?

Sebbene i mercati non si aspettino che la Federal Reserve si affretti a ridurre gli acquisti di asset, il mercato è piuttosto fiducioso sul fatto che inizierà a ridurre il ritmo del suo programma di Quantitative Easing a partire da novembre. Ciò significa che l’incontro di questa settimana potrebbe essere il momento più opportuno per la Fed per dare un avvertimento al mercato.

L’inflazione dell’IPC della scorsa settimana ha reso leggermente fosche le prospettive, dal momento che è stata un po’ più debole del previsto, dando così alla Fed un po’ più di respiro. Cosa più importante, il rapporto sull’occupazione di agosto, risultato molto fiacco, suggerisce che la Fed potrebbe non volersi ancora decidere alla riduzione dell’acquisto di asset nel mese di novembre. Potrebbe però indicare che essa continui a ritenere che il la riduzione degli acquisti sia adeguata quest’anno, senza dare però una scadenza prestabilita.

Gli investitori saranno perlopiù interessati al modo in cui i responsabili delle politiche valuteranno il ritmo della ripresa del mercato del lavoro, e se riterranno che le pressioni inflazionistiche stiano diventando meno temporanee di quanto pensassero. Per avere indicazioni sul fatto che la Fed stia cambiando idea sul ritmo dell’inflazione e della crescita, verrà prestata particolare attenzione all’ultima tornata di proiezioni economiche.

La Banca d’Inghilterra risponde all’aumento dell’inflazione

Durante la sua riunione di questa settimana, la Banca d’Inghilterra dovrà rispondere al più grande balzo dell’inflazione mai registrato prima d’ora. L’inflazione ha accelerato al 3,2% in agosto dal 2% di luglio, ben al di sopra dell’obiettivo del 2% della banca centrale. Ciò spingerà la Banca d’Inghilterra ad adottare una politica monetaria restrittiva prima di quanto ci si aspettasse? Una Banca d’Inghilterra aggressiva rappresenterebbe una spinta per la sterlina.

Dati economici da osservare

Oltre a quanto sopra, questa settimana i mercati saranno in attesa di una serie di dati economici, compresi i PMI flash di giovedì per l’area Euro, il Regno Unito e gli Stati Uniti. La Banca del Giappone dovrebbe incontrarsi, con il governatore Kuroda che ha recentemente indicato che la banca centrale allenterà ulteriormente la politica monetaria, ad esempio riducendo i tassi di interesse, se necessario.

Gli utili di Nike e FedEx

Il calendario degli utili non è particolarmente fitto, ma ci aspettiamo gli aggiornamenti da Nike e FedEx, tra gli altri. A giugno, Nike ha registrato un risultato molto forte sul quarto trimestre, facendo schizzare il titolo a livelli record. Le vendite nel terzo quadrimestre sono salite del 96% rispetto allo stesso trimestre dell’anno precedente, con una crescita del 21% sul 2019. Anche i margini stanno migliorando rapidamente, dal momento che il sistema dell’azienda di fornitura diretta ai consumatori sta dando i suoi frutti. “L’anno fiscale 2021 è stato un anno cruciale per NIKE, poiché abbiamo attivato la nostra strategia Consumer Direct Acceleration in tutto il mercato”, ha spiegato il CEO John Donahoe. Tuttavia, negli ultimi tempi il valore delle azioni è sceso, tra le preoccupazioni per i problemi della catena di approvvigionamento e i milioni di prodotti persi in Vietnam a causa del covid.

“Nel corso della sua storia, le azioni Nike sono state strettamente correlate alla crescita delle vendite. Perciò, con la crescente evidenza che le vendite probabilmente si fermeranno, riteniamo che le azioni Nike nella migliore delle ipotesi resteranno a galla fino a quando non si avrà una maggiore chiarezza sui problemi di produzione e, nel peggiore dei casi, patiranno per le minori vendite e la conseguente compressione multipla”, hanno affermato gli analisti di BTIG in una nota che ha declassato il titolo a neutrale.

Da tenere sotto osservazione anche gli utili di Adobe, General Mills e Costco.

I principali dati economici

Mon Sep 20  12:01am  GBP  Rightmove HPI m/m 
  All Day  JPY  Japan Bank Holiday 
  All Day  CNH  China Bank Holiday 
  7:00am  EUR  German PPI m/m 
  Tentative  EUR  German Buba Monthly Report 
  3:00pm  USD  NAHB Housing Market Index 
  All Day  CAD  Canada Federal Election 
  10:00pm  NZD  Westpac Consumer Sentiment 
Tue Sep 21  All Day  CNH  China Bank Holiday 
  2:30am  AUD  Monetary Policy Meeting Minutes 
  7:00am  CHF  Trade Balance 
    GBP  Public Sector Net Borrowing 
  11:00am  GBP  CBI Industrial Order Expectations 
  1:30pm  CAD  NHPI m/m 
    USD  Building Permits 
    USD  Current Account 
    USD  Housing Starts 
  2:00pm  CNH  CB Leading Index m/m 
  3:30pm  AUD  CB Leading Index m/m 
  Tentative  NZD  GDT Price Index 
Wed Sep 22  Tentative  JPY  Monetary Policy Statement 
  Tentative  JPY  BOJ Policy Rate 
  Tentative  JPY  BOJ Press Conference 
  2:00pm  CHF  SNB Quarterly Bulletin 
  3:00pm  EUR  Consumer Confidence 
    USD  Existing Home Sales 
  3:30pm  Oil  Crude Oil Inventories 
  7:00pm  USD  FOMC Economic Projections 
    USD  FOMC Monetary Policy Statement 
  7:30pm  USD  FOMC Press Conference 
Thu Sep 23  12:00am  AUD  Flash Manufacturing PMI 
    AUD  Flash Services PMI 
  All Day  JPY  Japan Bank Holiday 
  Tentative  EUR  German Import Prices m/m 
  8:15am  EUR  French Flash Manufacturing PMI 
    EUR  French Flash Services PMI 
  8:30am  CHF  SNB Monetary Policy Assessment 
    CHF  SNB Policy Rate 
    EUR  German Flash Manufacturing PMI 
    EUR  German Flash Services PMI 
  9:00am  EUR  Flash Manufacturing PMI 
    EUR  Flash Services PMI 
    EUR  ECB Economic Bulletin 
  9:30am  GBP  UK Flash Manufacturing PMI 
    GBP  UK Flash Services PMI 
  12:00pm  GBP  Bank of England monetary policy decision 
  1:30pm  CAD  Core Retail Sales m/m 
    CAD  Retail Sales m/m 
    USD  US unemployment Claims 
  2:45pm  USD  US Flash Manufacturing PMI 
    USD  US Flash Services PMI 
  3:00pm  USD  CB Leading Index m/m 
  3:30pm  Nat Gas  Natural Gas Storage 
  10:45pm  NZD  Trade Balance 
Fri Sep 24  12:01am  GBP  GfK Consumer Confidence 
  12:30am  JPY  National Core CPI y/y 
  1:30am  JPY  Flash Manufacturing PMI 
  7:00am  EUR  German GfK Consumer Climate 
  9:00am  EUR  German ifo Business Climate 
  3:00pm  USD  New Home Sales 

 

 

Stocks start the session weaker

Stocks in Europe are a tad weaker at the open after Monday’s rally, sticking to the recent well-worn ranges. US trading returns today with futures indicating a flattish open. There was a decent session in Asia overnight spurred on by strong data from China with the Nikkei 225 touching 30,000 for the first time since April, and the Topix hitting a 31-year high as the technical breakout from last week continues. Stocks in Shanghai and Shenzen were also up +1%. Despite all the worries about supply chains and Delta, Chinese exports surged in August by 25.6% year-on-year, up from the 19.3.% increase in July and beating the forecast of 17.1%. Sticking with China for a moment, shares in Evergrande, the indebted real estate giant, sank further to the weakest since 2015 as the fallout from its default risk continues to ripple through the property sector, where bond yields are rising fast. 

 

With stock futures doing little in the US and coming off the back of a three-day weekend, the focus will be on the cash equity open later on Wall Street in the wake of Friday’s disappointing jobs report and the lapsing of those last $300 stimulus cheques.  Still the relentless low-vol grind up is holding and Barclays today has lifted its S&P 500 price target to 4600 from 4400. Question is whether Sep/Oct produces a spike in volatility. A 3% drawdown – mild by anyone’s standards – takes you back to the 50-day SMA support that has held up so well this year, while a 10% correction tests the 200-day SMA. Technicals at the moment indicate sideways action and a loss of upwards momentum – merely a question of timing as to when we get a rollover. 

 

Interesting comments from the Bank of England’s Michael Saunders this morning, who said it might be right to think of rates going up in the next year or so. He indicated that the economy was already about the same size as it was before the pandemic, that inflation has been stronger than expected, and that the country does not need as much stimulus as previously. However, it should be noted that Saunders is about the most hawkish on the nine-member MPC so does not speak for the central consensus. I don’t think it tells us much we don’t already know but it underscores the conundrum facing central banks today as to when to ease off the gas. Saunders makes an important point in noting that continuing asset purchases when inflation is 4% might cause medium-term inflation expectations to drift higher, which could cause a more severe monetary policy response down the road. If central banks don’t get a grip on it now, they could be faced with bigger problems later – but they are all deeply paranoid about choking off recovery too soon. GBPUSD tried to rally on the comments but quickly reversed to hit its weakest since Sep 2nd. 

 

E-commerce winner DS Smith shares rose after the company said trading remains strong with solid box volume growth over 2019 levels, particularly in the US and southern Europe. But input costs continue to rise with management mentioning notable increases in the cost of energy and transportation. ‘Given the strong demand for our packaging we have seen good progress towards recovering these increases,’ the company said. Shares rallied over 2% in early trade.

 

The Reserve Bank of Australia stuck to its taper but will extend the purchase of bond purchases at $4bn a week from Nov 2021 to Feb 2022.  The RBA said the decision ‘reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak’. Looks like the RBA is trying to neutralise the taper they announced recently without actually rowing it back.  

 

Oil prices just tracking sideways after running into the near-term trend resistance last week. Bullish MACD crossover is still in play but momentum clearly drifting. Saudi price cut has tamed bulls but growth in Chinese exports is a +ve.

Spot Oil Chart 07.09.2021

Bank of England maintains dovish stance, raises inflation forecasts

The Bank of England today confirmed it would continue with its economy-boosting measures but said higher inflation is on the way.

Bank of England statement

Staying the course

Today, the Bank of England Monetary Policy Committee (MPC) voted to keep the historic low-interest rate in place. There will be no move from the current 0.1% base rate. Additionally, members voted 7-1 to keep the £895bn quantitative easing programme in place.

Policymakers struck a cautiously optimistic tone at today’s Bank of England press conference. However, Governor Bailey and council members did signal policy will be subject to modest tightening from here on out.

The BoE also raised its inflation forecasts. Economists were expecting this, given CPI has passed targets for two consecutive months.

In its monetary policy report, the Bank of England said: “Overall, Bank staff now expect inflation to rise materially further in the near term, temporarily reaching 4% in 2021 Q4 and 2022 Q1, 1½ percentage points higher than in the May projection.”

The report also outlined that the recent acceleration in CPI inflation is mainly due to volatility in energy and the prices of other goods. In the medium term, the Bank said it expects inflation to peter out and fall back to around its current 2% target.

Looking to GDP, the BoE forecasts 5% growth in Q2 2021 after a 1.6% contraction in the first quarter. This is slightly above what the Bank predicted in its May report. Even so, this would leave UK GDP some 4% lower than pre-pandemic levels.

GDP growth is forecast at 3% for Q3, in response to thousands of workers needing to isolate after Delta variant COVID-19 cases surged across the UK in recent weeks. However, COVID cases and hospitalisations have broadly fallen in the last month, giving some hope that the “pingdemic” is just a bump on the road to recovery.

According to the MPC, the economy will return to its pre-pandemic levels in the last quarter of the year. The pandemic’s impact is expected to have substantially lessened by then. At this time, GDP growth will cool and return to levels more normally seen in mature economies.

Unwinding QE

Quantitative easing-related purchases will be scaled back once the base rate reaches 0.5%, according to today’s policy outlook. At this time, the Bank will stop investing in maturing UK government bonds, but only if economic conditions are good enough.

This rate is substantially lower than the 1.5% rate earmarked in 2018.

In its policy report, the MPC forecast that its main interest rate would reach 0.5% in the third quarter of 2024, after hitting 0.2% in the third quarter of 2022 and 0.4% for the same period in 2023.

This comes after the Bank of England was recently dubbed “addicted to QE” by a House of Lords committee – something which Governor Bailey strenuously denies.

In all, a fairly positive report for the UK then. Sterling was up around the $1.925 level against the dollar after the Bank’s plans were made public and continued to build momentum at writing.

European stocks mixed ahead of earnings & BoE statement

Investors showed mixed sentiment this morning on a day that promises much in the way of earnings and central bank announcements.

At the time of writing, the FTSE 100 had retreated by over seven points. The DAX and CAC were performing much better, adding 17.8 and 22.38 points respectively. From a pan-European perspective, the Stoxx 50 was trading 17.00 upwards.

Many UK investors are essentially waiting for today’s Bank of England statements. Governor Bailey is due to outline the central bank’s monetary policy at midday today. Inflation is expected to be the day’s running theme.

Inflation has so far overshot established target levels for two consecutive months. The Bank’s response will be critical today. So far, there are two schools of thought predicting what the BoE might do. On one side, economists broadly think Bailey will up inflation targets. Investors, on the other hand, believe that the Bank will stick to a dovish tack, leaving its interest and QE stance unchanged.

UK CPI was up 0.5% in June on a month-by-month basis. This was way ahead of estimates and the fastest CPI growth rate reported since May 2018.

It’s likely the Bank of England is still feeling cautiously optimistic. It has predicted that inflation will peak at 3% in 2021 before falling away next year. The BoE says it has yet to see any evidence that the current acceleration in CPI is anything but transitionary.

Despite the surge in Delta variant COVID-19 cases across the last month, UK infection rates have broadly trended down throughout July and August. That gives some hope that the country will be able to return to full normality quicker than other economies. Pretty much all restrictions have been removed.

Ahead of today’s BoE announcement, GBP/USD had recaptured the 1.390 level. At the time of writing, cable had reached 1.394 and was up 0.19% on the day. Its future course will be decided later when we get more info on the Bank of England’s QE bond-buying stance.

EUR/USD had stayed mostly flat at 1.1837.

In terms of earnings, European large caps reporting today include Siemens, Adidas, Merck, Bayer, Intesa Sanpaolo and WPP.

Looking to US markets, the Nasdaq was showing positive movements, trending up nearly 20 points. The Dow Jones and S&P 500, however, were down pre-market, with the Dow sliding 0.9%. The S&P 500’s downward trend was in the 0.5% region at the time of writing.

On Wall Street, large caps reporting include Square and Virgin Galactic. You can find a rundown of the companies sharing earnings today with our US earnings season calendar.

La settimana che ci aspetta: Occhi puntati sul rapporto sul mercato del lavoro negli USA

Una settimana impegnativa per i mercati con l’evento principale dei nonfarm payroll statunitensi, oltre a due importanti dichiarazioni della banca centrale.

Partiamo dagli ultimi nonfarm payroll statunitensi.

La lettura di giugno è stata molto al di sopra delle aspettative, e i mercati osserveranno con estrema attenzione gli ultimi dati che verranno pubblicati venerdì.

Sono stati aggiunti 850.000 posti di lavoro nell’economia statunitense in giugno, ben oltre l’aspettativa di 720.000 posti. Si è inoltre trattato del sesto mese consecutivo con un aumento dei posti di lavoro.

Tuttavia, il tasso di disoccupazione è salito dal 5,8% al 5,9%, superando la previsione del 5,6%. La partecipazione della forza lavoro, il metro di riferimento per misurare la carenza di forza lavoro a livello nazionale, non si è spostata ed è rimasta al 61,6%.

Sembra che le nuove assunzioni siano complessivamente diminuite nel corso della primavera. Alcune motivazioni possono spiegare questo fenomeno: le paure legate al virus, i costi per l’assistenza all’infanzia, i più remunerativi assegni di disoccupazione e i pacchetti di stimolo e di pensionamento. Tuttavia, si segnala che le aziende hanno aumentato i salari per invogliare i lavoratori ad accettare nuovi lavori.

Anche il tasso di occupazione è un indicatore importante per il presidente della FED Jerome Powell nel valutare i livelli di stimolo e di supporto per l’economia statunitense.

Sappiamo che Powell e la sua squadra sono relativamente a loro agio nel lasciare che l’economia si surriscaldi, anche di fronte all’aumento dell’inflazione. Come Powell ha sottolineato durante l’ultima riunione della FED, mancano ancora 7,5 milioni di posti di lavoro nell’economia statunitense, anche se alcuni dossier suggeriscono che la cifra sia di 6,8 milioni. Finché queste posizioni aperte non saranno occupate, ci si aspetta più stimolo e supporto da parte della FED.

Per quanto riguarda gli indici, lo S&P 500 e il Nasdaq hanno risposto molto bene all’eccezionale rapporto sulla situazione del mondo del lavoro del mese scorso, raggiungendo nuovi massimi record. Gli operatori azionari sperano più o meno lo stesso per la lettura di luglio.

Restando sui dati relativi agli Stati Uniti, ISM, uno dei principali reporter sugli indici dei responsabili acquisti dell’economia americana, condivide questa settimana le sue prospettive sulla produzione e sui servizi.

La produzione statunitense si è dimostrata solida anche il mese scorso, secondo il rapporto PMI di ISM, ma i problemi della catena di approvvigionamento continuano a rallentare la crescita. I valore del dato relativo alla produzione è stato valutato a 60,6 punti, in calo rispetto al punteggio di 61,2 registrato a maggio.

Lo slancio è ancora vigoroso. Quattro dei cinque sottoindici valutati da ISM hanno mostrato una crescita elevata. L’interesse dei consumatori per i nuovi beni è ancora alto, nonostante l’aumento dei prezzi. Tuttavia, la carenza di manodopera, insieme all’aumento dei prezzi delle materie prime e dei materiali d’acquisto, ha causato colli di bottiglia e carenze proprio mentre i produttori faticano a tenere il passo con la domanda.

“I tempi di consegna lunghissimi per le materie prime, le carenze su vasta scala dei più importanti materiali di base, l’aumento dei prezzi delle materie prime e le difficoltà nel trasporto dei prodotti continuano ad affiggere tutti i segmenti dell’economia manifatturiera”, ha affermato Timothy Fiore, presidente dell’ISM Manufacturing Business Survey Committee.

Lo stesso vale per il settore dei servizi: a giugno c’è stato un aumento, ma questa espansione è stata inferiore rispetto a quella eccezionale di maggio. In questo caso, l’indice è sceso da 63,5 a 60,1.

“Il tasso di espansione del settore dei servizi resta importante, nonostante il leggero calo della crescita rispetto al massimo storico raggiunto il mese scorso”, ha spiegato Anthony Nieves, presidente dell’ISM Services Business Survey Committee. “Le sfide legate alla carenza di materiali, l’inflazione, i problemi alla logistica e le risorse per l’occupazione continuano a essere un ostacolo per le condizioni aziendali”.

Mantenere questo slancio è importante per la salute dell’economia statunitense, soprattutto perché si prevede che gli Stati Uniti saranno la forza trainante della ripresa economica globale per il resto di quest’anno e anche oltre.

Oltre ai dati, la prossima settimana saranno in arrivo un paio di dichiarazioni da parte della banca centrale.

A partire dalla Banca d’Inghilterra, dove il grosso problema è l’aumento dell’inflazione.

A giugno l’inflazione ha raggiunto il 2,5%, a causa al diffuso aumento dei beni di consumo. Potrebbe anche solo trattarsi della domanda, finora repressa nell’economia britannica, che si sta esprimendo in modo libero, ma dal momento che l’inflazione oggi è ai suoi livelli massimi da tre anni a questa parte, i nervi degli economisti sono messi a dura prova.

Il governatore Bailey ha già chiarito la sua posizione: i rialzi dei prezzi sono solo temporanei l’inflazione potrebbe raggiungere il 3% entro fine anno. Successivamente, dovrebbe tornare a livelli accettabili. Attualmente, la Banca d’Inghilterra ha il mandato di indirizzare l’inflazione verso il 2% e mantenerla su quel livello.

Tuttavia, Bailey ha dichiarato che sarebbe pronto a proporre aumenti dei tassi se si dovesse perdere il controllo sull’inflazione.

Questa settimana, anche la Reserve Bank of Australia condivide le sue ultime riflessioni e la sua direzione politica.

Ci sono molte probabilità che non ci siano grandi cambiamenti all’orizzonte. Il governatore Philip Lowe è stato molto chiaro sul fatto che, almeno fino al 2024, non è previsto nessun imminente aumento dei tassi. Questo nonostante i forti fondamentali economici dell’Australia.

Il tasso di cassa minimo storico dello 0,1% resterà invariato. Tuttavia, la cosa interessante è che l’incontro di luglio ha portato ad alcune modifiche al programma di Quantitative Easing australiano. La bilancia è stata tirata indietro. Da settembre in poi, gli acquisti di obbligazioni della Reserve Bank of Australia caleranno da 5 a 4 miliardi di AUD a settimana.

Il governatore Lowe ha gettato le basi per ulteriori modifiche alla politica. Vedremo a cosa porterà l’incontro di questa settimana in termini di eventuali cambiamenti su piccola scala.

Non possiamo completare l’anteprima degli eventi chiave della settimana senza toccare la stagione degli utili negli Stati Uniti.

Lunedì avrà inizio la terza settimana dei rapporti sugli utili del secondo trimestre del 2021 per le aziende a grande capitalizzazione. Non sarà così intensa come la settimana scorsa, ma ci saranno ancora alcuni importanti rapporti in arrivo, tra i quali Alibaba e Uber.

Dai un’occhiata al nostro calendario degli utili negli Stati Uniti per avere altre informazioni sulle aziende più importanti che riferiscono sui propri utili questa settimana, oppure vedi sotto.

I principali dati economici

Date Time (GMT+1) Asset Event
Mon 2-Aug 8.55am EUR German Final Manufacturing PMI
  3.00pm USD US ISM Manufacturing PMI
 
Tue 3-Aug 5.30am AUD RBA Rate Statement
  5.30am AUD Cash Statement
  11.45pm NZD Employment Change q/q
  11.45pm NZD Unemployment Rate
 
Wed 4-Aug 2.30am AUD Retail Sales m/m
  1.15pm USD ADP Nonfarm Employment Change
  3.00pm USD US ISM Services PMI
  3.30pm OIL US Crude Oil Inventories
 
Thu 5-Aug 12.00pm GBP Asset Purchase Facility
  12.00pm GBP BOE Monetary Policy Report
  12.00pm GBP MPC Asset Purchase Facility Votes
  12.00pm GBP Monetary Policy Summary
  12.00pm GBP MPC Official Bank Rate Votes
  12.00pm GBP Official Bank Rate
  3.30pm GAS US Natural Gas Inventories
 
Fri 6-Aug 2.30am AUD RBA Monetary Policy Statement
  1.30pm CAD Employment Change
  1.30pm CAD Unemployment Rate
  1.30pm USD Average Hourly Earnings q/q
  1.30pm USD Nonfarm Employment Change
  1.30pm USD Unemployment Rate

 

I principali rapporti sugli utili

Mon 2 Aug Tue 3 Aug Wed 4 Aug Thu 5 Aug
Arista Networks Alibaba General Motors Ball Corp
Activision Blizzard The Kraft Heinz Co Beyond Meat
Roku Inc Illumina
Uber Technologies Square Inc
The Trade Desk
Virgin Galactic Holdings

European stocks edge higher, BoE meeting ahead

Stocks seem to be largely marking time until there is more clarity on economic data like inflation with the major European bourses a little higher this morning but well within ranges. Bonds are steady with US 10s around 1.5% and stocks are likely to remain similarly directionless until the former start to motor. Wednesday saw US indices essentially flat but they remain +1% higher on the week after a sharp turnaround from the Fed-induced selling last week. The Nasdaq rose marginally to notch another record high with subdued bond yields allowing investors to get back into big tech growth. More Fed speakers today to watch for in the shape of Bostic, Harker, Williams, Bullard and Barkin but the sentiment seems to be that if the Fed is going to more mindful of inflation than was judged for most of the last year then it ought to keep control of yields and allow for gently rising stock markets. I’d still be mindful of a tantrum later this year when yields ought to pick up some steam. 

 

Sterling trades close to $1.40 ahead of the Bank of England monetary policy statement today. As detailed in our preview, no change is expected but there are signs that inflation might run hotter than the MPC currently forecasts so we will be watching for any commentary around this. Yesterday’s UK PMI report pointed to strong inflationary pressures that will take CPI above the bank’s 2% target – the question is how far above and for how long – and how does the Bank respond. Bailey has made clear the MPC won’t tolerate above-target inflation for long. Could he spring a hawkish surprise today and say something like ‘inflation pressures are building and the bank has the tools to respond’?  I don’t think this is the time yet to do this, but that’s why it would be a surprise.

 

GBPUSD: near term resistance at the 1.40 round number, support holding on the 100-day line at 1.3950.

WTI made a fresh high above $74 amid ongoing expectations that restrained supply and improving demand is leading to an increasingly tight crude market. Yesterday the EIA reported crude oil stocks declined by 7.6m. Stocks at the Cushing, Oklahoma hub fell to their lowest since March 2020 and US total petroleum demand rose 20.75m bpd, getting close to pre-pandemic levels. Meanwhile OPEC is signalling a stronger oil market. Chatter is that the cartel will increase production by 500,000 bpd from August as they continue to cautiously unwind production curbs. 

 

Copper has staged a bit of comeback this week but there are some bearish indicators on the physical supply front with China releasing metal from reserves to counter rising inflation. Wednesday saw a bounce in copper as the release of 100,000 tonnes of base metals was less than expected, but this is being reversed. Import demand in the country is also reported to be the weakest since 2017, whilst LME stockpiles are 30% higher this month.  

 

Bitcoin futures just running into resistance at the 200-day line, which had acted as support during recent plunges.

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