UK GDP growth revised to 2.5% for 2014. BoE verbally on neutral after inflation report. Market rates have come up faster than we thought. GBP to perform better
In spring the recovery was seen as the slowest in 100 years. Now, PMIs are the highest on record. In spring Governor Carney was the dove above doves. Now, he sees no need for more QE and is not afraid to hike rates at some point. The GBP has strengthening significantly as a consequence, but the most recent move higher in GBP/USD seems overdone. We maintain our longer-term GBP views: stronger vs the EUR and weaker vs the USD.
Central banks have become very keen to give concrete forward guidance to markets lately. The Fed has of course been doing it for several years already, but the ECB and the Bank of England started doing it only recently. The …
No changes to the policy stance at the first MPC meeting under Mr Carney today, but a clear indication that forward guidance is the first priority, and, if rates remain at the current level, that guidance will be in a dovish direction.
Sir Mervyn King was replaced as Bank of England (BoE) Governor by Mark Carney today. Thursday's MPC meeting will be the first chaired by the new Governor and therefore potentially interesting even if recent economic developments do not give much reason to expect changes in the monetary policy stance.
We have made minor adjustments to our longer-term financial forecasts for the UK. Below we summarise our scenario and the key reasoning behind the numbers.
The UK was downgraded one notch by Moody’s from Aaa to Aa1 on Friday. Moody’s says the rating outlook is now stable. It is not a major surprise that the UK has been downgraded. Many expected the downgrade already last year and there were numerous rumours during last week. S&P and Fitch both have the UK on negative outlook and may follow soon.
David Cameron’s long awaited speech on the future of Britain in the EU was delivered today. The key message is that his government will campaign for a mandate to change the EU and Britain’s role in it in the 2015 elections and in exchange offer an in-or-out vote to the British people – probably in 2017, if everything goes according to plan.
UPDATE! Now with link to web presentation. Winter equinox marks the day when the days are shortest—and from then on days become longer. The same can be said of the global economic development. In spite of the growth in 2012 has been slightly weaker than expected we still see economic growth improving. We have lowered our growth forecasts for 2012 and 2013 marginally but upped our 2014 forecasts.
While today’s news was in line with consensus expectations it was in no way a done deal. The decision to refrain from further easing is likely to strengthen the GBP and lead to somewhat higher government bond yields
Elections in US and in China will dominate headlines. Central bank meetings at the ECB and the Bank of England. First independent Danish rate hike in almost four years, weak Swedish production numbers and low Norwegian core inflation.
The most important events this week will be the FOMC meeting and the Troika review of Greece. We expect the Riksbank to stay on hold.
This week’s key event will be the EU Summit Thursday and Friday although it may not necessarily provide the news about Greece and Spain that the financial markets are waiting for.
Focus on Euro-zone problems continue. We don't expect economic key figures to surprise on the upside. Risk on/risk off to ebb and flow and we're keeping our forecasts mostly unchanged.
More details from the ECB on OMT, September employment report and ISM manufacturing survey from the US, minutes of the FOMC meeting, UK PMI figures and the Bank of England rate decision.
This Week Ahead brings fewer important events, but will surely have its moments. While the markets are still digesting the Fed and ECB announcements, Spain is watching the markets and biding its time.
QE3 from Fed and Wild Wednesday in the Euro area next week
Will the ECB deliver? Hopes are high but expect somewhat of a disappointment as they won't reveal all.
Markets are waiting for cues to take new direction - cues about possible decisive ECB intervention and/or more evidence that the big economies are starting to recover modestly.
Summertime has more often than not seen plenty of market action in the past few years, and we do not expect this time to be an exception.
The Bank of England, as expected, expanded its asset purchase programme by GBP 50bn while the Bank Rate was kept at 0.50%. We do not expect these measures to materially change the outlook for the UK economy, and this may not have been the final expansion in the asset purchase programme.
We expect the Bank of England to announce another round of QE at their meeting tomorrow announcing a GBP 50bn in asset purchases bringing the total to GBP 375bn. This will not materially change the outlook for the UK economy but compared to the Euro-zone we still see Gilts and the pound to attract safe haven flows.
The UK manufacturing PMI surprisingly jumped and handsomely beat the consensus expectations. This was a welcome sign amidst generally disappointing economic data lately, but does not change the view that BoE give another dose of easy money on Thursday.
Bank of England voted narrowly against lifting the QE at their June meeting. We expect an additional GBP 50bn at their next meeting in July. Short-term negative for the GBP but we see it supportive longer-term.
Next week’s calendar looks quite interesting, with the main focus in the US on the 2-day Fed meeting concluding on Wednesday.
We do not expect next week’s economic data offerings to convey a particularly encouraging message. Here is what we expect from the week ahead.
Germany will balance her budget by 2014 but some say that is unambitious. In the UK, Chancellor Osborne is hoping that cutting spending AND lowering taxes at the same time might support growth. It is one big experiment in real time.
Finance Minister Osborne wants to return to the good old days of the 18th and 19th century.