BOE's policy decision and QIR was largely inline with expectations, perhaps even 10bn better than expected on the QE side - and was very forgiving with hints towards further interest easing, though the stubborn unwillingness to realise negative rates undermined this to some extent. GBPJPY and GBPUSD shorts traded into intermediate TP levels - with GBPJPY unsurprisingly outperforming (implied vol adjusted) given USD weakness, and trading through the 133 handle (132.3 now targeted) whilst cable traded abit more firmly bid struggling to even test the 1.308 pivot, let alone break it - i think we will see a 1.308 key support break tomorrow if NFP comes in hit or beat and I am now waiting for this (gbpjpy shorts closed).
BOE Monetary Policy Decision Highlights:
BOE Aug Minutes: 0 Members Voted to Increase Rate DJ News BOE: Six Members Voted To Expand QE Program, Three Against BOE: Forbes, Weale And McCafferty Voted Against Expansion Of QE BOE: QE Dissenters Saw Risk That Recent Surveys Overstate Economic Weakness DJ News BOE: Eight Members Voted To Launch Corporate Bond Buys, Forbes Dissented DJ News BOE: Forbes Concerned By Excessive Stimulus, Risks Of Corporate Debt BOE: All Members Voted In Favor Of Term Funding Program BOE: Majority Of MPC Members Expect To Vote For Further Rate Cut 0 BOE: MPC Members See Lower Bound For Bank Rate "Close To, A Little Above" Zero BOE Aug Minutes: MPC Voted 9-0 To Lower Bank Rate To 0.25% BOE Aug Minutes: 0 Voted to Keep Rate Unchanged BOE Aug Minutes: 9 Members Voted to Lower Rate BOE Signals MPC Not Contemplating A Move To Negative Interest Rate BOE: Economic Outlook "Has Weakened Markedly" Following Brexit Vote BOE Makes Largest Cut In Economic Growth Forecast Since 1993 BOE Cuts 2017 Economic Growth Forecast To 0.8% From 2.3% In May BOE Cuts 2018 Economic Growth Forecast To 1.8% From 2.3% In May BOE Sees Declines In Business Investment During 2017 And 2018 BOE Sees Business Investment Down 3.75% In 2016 Versus 2.5% Growth In May BOE Sees Business Investment Down 2% In 2017 Versus 7.25% Growth In May BOE Sees Housing Investment Up 1.25% In 2016 Versus 4% In May BOE Sees Housing Investment Down 4.75% In 2017 Versus 5.25% Growth In May BOE Sees Pickup In Inflation On Weaker Pound BOE Sees Inflation At 2.1% In 2017, 2.4% In 2018 BOE: Measures Ensure Inflation Won't Fall Below Target In Medium Term UK Hammond: Prepared To Take Needed Steps To Support Economy BOE Expands Program Of Government Bond Purchases By GBP60 Bln BOE Purchases Of Government Bonds Will Take Six Months To Complete BOE Government Bond Buys Will Take Total To GBP435 Bln From BGP375 Billion BOE Last Expanded Stock Of Government Bond Buys In November 2012 BOE Launches New Program of GBP10 Billion In Corporate Bond Buys BOE Purchases Of Corporate Bonds Will Take 18 Months to Complete BOE Will Buy Non-Financial, Investment Grade Bonds BOE: Issuers Of Corporate Bonds Must Make "Material Contribution" To UK Economy BOE Approves Term Funding Scheme To Provide Loans To Lenders BOE Loans To Banks, Building Societies At "Close To" Bank Rate BOE TFS Intended To Ensure Cut In key Rate Passed On To Businesses, Households BOE MPC Sees Room To Expand all Four Stimulus Measures
BOE Govenor Mark Carney et al. Speech Highlights:
BOE Carney: UK Has One Of Most Flexible Economies BOE Carney: Can't Fully Offset Economic Impact Of Brexit BOE Carney: Package Of Stimulus Measures Is "Exceptional" BOE Carney: By Acting Early Can Reduce Uncertainty, Bolster Confidence BOE Carney: GBP Fall Will Boost Exports, Reduce Imports BOE Carney: MPC Has Been "Conservative" In New Growth Forecasts BOE Carney: Package Ensures Stimulus Will Have Maxium Impact
Comment
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BOE Carney: All Of Elements In Package Can Be Increased BOE Carney: MPC Members See Further Rate Cut Later This Year Carney: BOE Stands Ready To Take Whatever Steps Are Needed BOE Carney: Banks Have "No Excuse" Not To Pass On Rate Cut BOE Carney: "I'm Not A Fan Of Negative Interest Rates" BOE Carney: No Lower Yield Limit On Bond Buys Carney: Can't See Scenario Under Which Negative Rates Would Be Contemplated BOE Broadbent: Sees Small Fall In House Prices Over Coming Year BOE Carney: Doesn't See "Merit" In Helicopter Money
That was a very nice call and boe literally went overboard today with extreme dovish statement. I think in mid term if inflation ticks up it will be disasterous cause cb policies will be ineffective whilst government fiscal would mean more debt coming. We could be heading for a bond crisis with GOVT everywhere printing money to save their economy. this is a very bad picture of the world if things in UK become contagious to other region
QuantumLogicTrading
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thanks.. and yes he was quite dovish though he was firm to say no negative rates which kind of reigned in any extreme expectations, though he was certain to say they expect more easing which should weigh on GBP especially if data continues to be poor. The UK is a very isolated nation + brexit doesnt seem to be impacting anything - our european partners are doing better than ever vs our business optimism/ confidence/pmis is at 10yr lows so i think contagion risk is low.
Inflation for the last 7yrs has been all about downside and with the UK currently at 0.5%, i dont think theres much risk of the economy overheating - even if somehow it got to 1.5% quickly (unlikely as x/m contracts are longer dated so previous GBP prices are still being dealt at), we'd still be 0.5% away from the target measure + the BOE can also always increase the rate or reduce the QE holdings in a response to any tail inflation we may experience though i think it is unlikely, infact i like to think this is what the UK actually needs to set inflation on the right track.
MrWondera
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Yep it seems so in the short-term but in mid and long term its already under a huge cloud of recession. There are thousands of companies, organisation, big corp and big banks are relocating asset from uk, an example would be 80% of Britain electric industry are owned by the french. I bet that in sept or dec UK employment will take a big hit along with rising inflation as the result from x/m contracts lol. The only thing that i'm worrying about is that if it could be contagious to the whole Europe Region. (We have the Italian bank under water and dont forget Greece). there are still some time before we could measure the actual impact of brexit yet but i hope it wont be as bad as i imagine.
QuantumLogicTrading
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Well on the contrary, whilst i agree falling employment may rise theres some more elements at play 1. the fall in unemployment will be eased as net exports increase demand which in turn, helps employment rise and 2. whilst there might be some inflationairy pressures from net exports increasing, this should be eased by the fall in unemployment - the less tighter labour market in turn eases wage-flation which then is passed on into the general price level as lower wages/ less employment = less demand for goods so the fall in domestic inflation will offset some of the imported inflation.
The relative balances are very hard to know until we get there, but from the BOE's point of view theyre more concerned with the unemployment + demand/ gdp risk than the over cooking risk.
Like i said earlier, currently EURO data is solid/ unfazed by the brexit situation relative to the UK which is showing clear signs of an issue... The greece/ italian bank situation was/is imo a separate EU issue and not really a function of brexit or the UK - the UK has limited impact on the EU as currently it only makes up about 9% of total imports and isnt even in the top 3 trading partners - whereas from the uk's perspective 55% of our exports go to europe, so the UK is much more sensitive and has more to lose than the EU.
I think with the BOE taking action early and prepared to take more action, we should transmission pretty seemlessly... i actually think the UK ends up better off without EU, in the 2-5yr term I can see the UK performing better - EURO area in general is a drag, inflation, gdp and employment all lag the UK so i feel the EU acts as an economic drag and actually slows down recovery, but who knows we will see.
one things for sure i dont think we will see much more than an average transmission, i dont expect a 1stdev situation or anything of the like. the BOE and UK Govt seem to be ontop of this one... assuming they follow through with there words which they have done.