Monday November 6, 2017 - 21:41:15 GMT
Share This Story
Global-View - www.global-view.com
BANK OF ENGLAND HIKES, BUT DAMPENS MARKET EXPECTATIONS FURTHER OUT
This updated inflation profile is conditioned on two further rate hikes over the next three years. This, on the face of it, would suggest that the Bank may need to raise rates by more than the markets are currently expecting. The Bank has explicitly acknowledged this in previous Inflation Reports. However, the absence of such a statement on this occasion delivered a more dovish outcome to today’s meeting than was expected.
Overall, the MPC’s take on the outlook for the UK has not substantively changed. The economy is expected to remain relatively resilient, while disappoint productivity growth will continue to see the limited amount of spare capacity that exists in the economy, to be used up relatively soon, necessitating further increases in interest rates over the forecast horizon. Beyond the first hike, the prospect for future increases will rest largely on how the UK’s supply potential reacts relative to demand. Ongoing signs of weak productivity, relatively subdued business investment and signs of diminished slack in the labour market suggest that any increases in economic capacity are likely to lag behind demand. As a result, we expect the MPC to sanction a further quarter-point rise in the Q3 2018.
Fed Remains On Track For A December Rate Hike. Bank Of England “Dovish” Hike
John M. Bland, MBA
No Fed Policy Change; New Chair Named As widely expected, the U.S. Federal Reserve kept policy steady at its November 1 meeting. Since instituting quarterly press conferences mid-month in March, June, September and December , all but those special meetings have informally eliminated as dates for policy changes. It is now generally accepted that the central bank would prefer an opportunity to explain itself when major policy decisions have been made. Of course policy changes can be executed at non-press conference meetings, that has not happened yet. On the other hand, for several months now, a 25bp rate hike has been priced in (788% odds)for December 13. In the November press release, the FOMC was more upbeat about recent economic developments. Recent data continue to suggest the economy is on a solid growth path. On the other hand, concerns about low inflation persists. The Fed said that economic conditions are likely to “warrant gradual increases in the federal funds rate”. In other words, the FOMC was implicitly acknowledging that its inflation targets are probably flawed. Any person in the street would observe that there is little relationship between their cost of living and those measured by government statistics. There is little doubt that the Fed is on track to raise the Fed Funds target from 1.00-1.25% to 1.25%-1.50% at that meeting. Only an unexpected significant deterioration in economic data would halt this process. Friday’s October employment release was hurricane distorted but suggested that the economy continues to grow solidly.
On Thursday, it was confirmed that Jerome Powell would replace Janet Yellen as Fed Chair. Yellen was not replaced because of her excellent performance in the job at a particularly difficult time. In fact Powell was seen as likely to favor a monetary policy in the mold of Yellen. It was more a question of her regulatory bias for the baking system that did her in with the new U.S. President. Some worry about the lack of training in economics for Powell as concern in the job in these uncharted times.
Bank Of England Rate Hike On Thursday November 2, the BOE hiked interest rates from a near-zero level by 25bps (0.25% to 0.50%). The markets dubbed this a “dovish” rate hike because forward guidance was only for two additional hikes through 2020. The policy move was as expected. The vote tally indicated that seven of the MPC members supported the move. This was slightly more than had been generally expected.
Official forecasts showed the GDP estimate for 2017 lowered to 1.60% from 1.70%. GDP in 2018 was kept steady at 1.60% 2019 GDP was estimated at 1.70% vs.1.80. Inflation projections were generally held steady. That means it is expected to continue to run above its 2.00% target. This inflation overshoot is being blamed on the post-Brexit vote sterling decline.
Amazing Trader EVENT RISK Calendar:
Sun 5 Nov
00:00 US, CA- Clocks fall Back
Mon 6 Nov
08:00 EZ- final Service PMIs
Tue 7 Nov
Wed 8 Nov
Thu 9 Nov
Fri 10 Nov
00:00 US- Holiday (partial)
14:30 US- Prelim Univ of Mich Survey
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."