News:
UK: The Bank of England voted to raise Bank Rate by 25bps to 0.50% last Thursday. In a surprisingly hawkish turn, 4 of 9 MPC members voted for a 50bps hike, and alongside messaging
that Bank Rate would continue to rise in the coming months, have sent the signal that the MPC is impatient to see
rates higher. Alongside Thursday's decision, the MPC confirmed that Gilt reinvestments will now cease, and that active Gilt sales
would be considered once Bank Rate reaches 1.00%. Furthermore, the MPC announced that the corporate
balance sheet would start to be sold off no later than the end of 2023.
Four out of five members opting for a 50bps hike did come as a very hawkish surprise for the markets. Gilts sold
off close to 10-12bps across the curve, the curve continued its bear flattening. The clear message of quick, near-term tightening should keep the March meeting alive. Markets are priced for 25-30bps in hikes for March and a total of 110bps in hikes for 2022.
US: The latest NFP report revealed that the negative hit to the US economy from the current Omicron wave is proving more
limited than prior COVID waves. The report revealed that the US economy added
467k jobs in January, and there were significant upward revisions to employment
growth in prior months totalling +709k jobs. Employment growth is now averaging
around 540k jobs/month over the last three to six months. The strong jobs growth
and well above target inflation meets the Fed’s goal to soon begin raising the Fed
funds rate.
It has reinforced expectations that the Fed will begin raising rates at the next FOMC meeting on 16th March and
continue to raise rates at following FOMC meetings. The US rate market has also
moved to price in around a 1-in-3 probability of the Fed kicking off their rate hike
cycle by delivering a larger 0.50 point hike. It reflects market participants views that
the Fed is behind the curve in fighting inflation, and speculation over a larger hike
has been encouraged. But recent comments by Fed officials have signalled that they favour 0.25
points hikes.
UK: The Bank of England voted to raise Bank Rate by 25bps to 0.50% last Thursday. In a surprisingly hawkish turn, 4 of 9 MPC members voted for a 50bps hike, and alongside messaging
that Bank Rate would continue to rise in the coming months, have sent the signal that the MPC is impatient to see
rates higher. Alongside Thursday's decision, the MPC confirmed that Gilt reinvestments will now cease, and that active Gilt sales
would be considered once Bank Rate reaches 1.00%. Furthermore, the MPC announced that the corporate
balance sheet would start to be sold off no later than the end of 2023.
Four out of five members opting for a 50bps hike did come as a very hawkish surprise for the markets. Gilts sold
off close to 10-12bps across the curve, the curve continued its bear flattening. The clear message of quick, near-term tightening should keep the March meeting alive. Markets are priced for 25-30bps in hikes for March and a total of 110bps in hikes for 2022.
US: The latest NFP report revealed that the negative hit to the US economy from the current Omicron wave is proving more
limited than prior COVID waves. The report revealed that the US economy added
467k jobs in January, and there were significant upward revisions to employment
growth in prior months totalling +709k jobs. Employment growth is now averaging
around 540k jobs/month over the last three to six months. The strong jobs growth
and well above target inflation meets the Fed’s goal to soon begin raising the Fed
funds rate.
It has reinforced expectations that the Fed will begin raising rates at the next FOMC meeting on 16th March and
continue to raise rates at following FOMC meetings. The US rate market has also
moved to price in around a 1-in-3 probability of the Fed kicking off their rate hike
cycle by delivering a larger 0.50 point hike. It reflects market participants views that
the Fed is behind the curve in fighting inflation, and speculation over a larger hike
has been encouraged. But recent comments by Fed officials have signalled that they favour 0.25
points hikes.