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Carney Braces for Brexit Twists as BOE Inflation Unease Grows

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Mark Carney
  • Carney Braces for Brexit Twists as BOE Inflation Unease Grows

Mark Carney warned that the real uncertainty over the U.K.’s decision to leave the European Union is still ahead and that the Bank of England will need to respond accordingly.

“The Brexit journey is really just beginning — while the direction of travel is clear, there will be twists and turns along the way,” the BOE governor told a press conference in London on Thursday. He said that with inflation accelerating and risks to growth on the horizon, “we can see scenarios in either direction” for policy.

The BOE upgraded its economic forecasts for the second time since the Brexit vote while revealing that some policy makers have become more concerned about accelerating inflation. The revised outlook follows stronger-than-expected growth and reflects an easier fiscal stance, buoyant consumer spending and an improving global environment.

The Monetary Policy Committee now sees gross domestic product rising 2 percent this year, up from 1.4 percent in November. Carney stressed, however, that there are risks ahead, saying the “stronger projection doesn’t mean the referendum is without consequence.”

The solid expansion, coupled with a pickup in price growth, saw rate setters repeat that they have limited tolerance for inflation above their 2 percent target. Some members went further and said they are “closer to those limits.”

Inflation is forecast to accelerate through this year and peak at 2.8 percent in 2018.

The BOE left its key rate at a record-low 0.25 percent and its bond-purchase programs unchanged, it said on Thursday.

The pound fell. The currency was down 0.8 percent at $1.2554 at 1:07 p.m. London time.

“If we do see a situation where there is faster growth and wages than we anticipated or spending doesn’t decelerate later in the year, one can anticipate there would be an adjustment of interest rates,” Carney said.

Still, in a sign that a change isn’t imminent, officials said there’s more slack in the economy than previously thought so the jobless rate can fall further without generating inflation. They also warned the decision to leave the European Union would continue to create uncertainty.

Fed Assessment

Carney is giving himself time to assess the potential longer-term economic fallout from Brexit. The Federal Reserve took a similarly cautious tone on Wednesday, giving little signal on the timing of its next rate increase as it tries to figure out what President Donald Trump’s actions mean for the U.S. outlook.

The BOE sees inflation averaging 2.7 percent this year and 2.6 percent in 2018, little changed from its November projections. It will slip back to 2.4 percent in 2019. The forecasts are based on market expectations for an interest-rate increase early that year, though the curve has steepened since the forecasts were completed.

The pickup in prices partly reflects the pound’s 15 percent drop since the Brexit vote in June. The upward pressure on inflation has eased somewhat, with sterling up 3 percent since the November forecasts. Policy makers said further currency volatility is likely as more details about the EU exit emerge.

They also expect faster price growth to weigh on consumers, though less than previously thought. Household spending is forecast to rise 2 percent this year, up from 1.25 percent in November. Housing investment — previously seen almost stagnating — is now expected to jump 3 percent.

The BOE has also become more optimistic about the labor market in the coming years, seeing the jobless rate about half a percentage point lower than previously anticipated. It cut its estimate of the equilibrium rate to 4.5 percent from 5 percent, which is lower than the current level of 4.8 percent.

While the Brexit impact on the economy has been limited so far, the U.K. hasn’t actually begun the formal exit process. Prime Minister Theresa May plans to trigger that by the end of next month. Lawmakers gave her their backing in an initial vote in Parliament on Wednesday, though there will further votes in the coming weeks before she can go ahead.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Markets

Global Markets Near Record Peaks and Will Get Stronger: deVere CEO

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Stocks

As the FTSE 100 hits 7,000 points for the first time since the Covid pandemic, global stock markets are poised to “get even stronger”, says the CEO of one of the world’s largest independent financial advisory and fintech organisations.

The observation from Nigel Green, the chief executive and founder of deVere Group, comes as London’s index jumped over the important threshold in early trading in London, gaining over 0.5% to 7024 points.

Mr Green notes: “London’s blue-chip index is up 40% since the worst lows of the pandemic.

“This landmark moment represents the wider optimistic sentiment gripping global markets which are near record peaks.

“We can expect global stock markets to get even stronger as investors look to seize the opportunities from economies reopening.

“They are looking towards economies rebounding in a post-pandemic era due to the monetary and fiscal stimulus, pent-up cash and demand, and strong corporate earnings.

“The current ultra-low interest rate environment and the under-performance of bonds will also act as a catalyst for stock markets.”

However, the CEO’s bullish comments also come with a warning.

“I would urge investors to proceed with caution as there are some headwinds on the horizon, including relations between the U.S. and China, the world’s two largest economies, which could be coming to a tipping point in coming weeks.

“As such, in order to capitalise on the opportunities and mitigate risks, investors must ensure proper portfolio diversification.”

Mr Green concludes: “A variety of factors are going to drive global stock markets. Investors will not want to miss out and should work with a good fund manager to judiciously top-up their portfolios.”

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Refinitiv Expands Economic Data Coverage Across Africa

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Building on its commitment to drive positive change through its data and insights, Refinitiv today announced the expansion of its economic data coverage of Africa. The new data set allows investment managers, central bankers, economists, and research teams to use Refinitiv Datasteam analytical data for detailed exploration of economic relationships and investment opportunities among data series covering the African continent.

Securing reliable, detailed, timely, locally sourced content has not been easy for economists who have in the past had to use international sources which often can take many months to update and opportunities to monitor the market can be missed. Because Africa is a diverse continent, economists and strategists need more timely access to country-specific data via national sources to create tailored business, policy, trading and investment strategies to meet specific goals.

Africa continues to develop critical infrastructure, telecommunications, digital technology and access to financial services for its 1.3bn people. The World Bank estimates that over 50% of African inhabitants will be under 25 by 2050. This presents substantial opportunities for investors who can spot important trends and make informed decisions based on robust and timely economic data.

Stuart Brown, Group Head of Enterprise Data Solutions, Refinitiv, said: “Africa’s growing, dynamic and fast evolving economies makes it a focal point for financial markets today and in the coming decades.  As part of LSEG’s commitment to empowering the global markets with accurate and timely data, we are excited about making these unique datasets available via the Refinitiv Data Platform. Our economic data coverage of Africa will provide our customers with deeper and broader inputs for macroeconomic analyses and enable more effective investment strategies and economic research.”

Refinitiv Africa economic data coverage:

  • Africa economics content comprises around 500,000 nationally sourced time series data covering 54 African nations
  • Content is sourced from national statistical offices, central banks and other key national institutions
  • The full breadth of economics categories in Datastream including national accounts, money and finance, prices, surveys, labor market, consumer, industry, government and external sectors
  • International sources including OECD, World Bank, IMF, African Development Bank, Oxford Economics & more provide comparable data & forecasts across the continent

Refinitiv® Datastream® has global macroeconomics coverage to analyze virtually any macro environment, and better understand economic cycles to uncover trends and forecast market conditions. With over 14.2 million economic times series map trends, customers can validate ideas and identify opportunities using Refinitiv Datastream. Access its powerful charting tools, 9,000 pre-built chart templates and chart studies for commonly used valuation, performance, and technical and fundamental analysis.

 Refinitiv continually grows available data – the China expansion in 2019 covered a unique combination of economic and financial indicators. Refinitiv plans to expand Southeast Asia covering Thailand, Vietnam, Philippines and Malaysia with delivery expected in 2021. This ensures that Refinitiv will have much needed emerging market economic content.

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Oil Rises on Drawdown in U.S. Oil Stocks, OPEC Demand Outlook

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Oil prices rose in early trade on Wednesday, adding to overnight gains, after industry data showed U.S. oil inventories declined more than expected and OPEC raised its outlook for oil demand.

Brent crude futures rose 28 cents, or 0.4%, to $63.95 a barrel at 0057 GMT, after climbing 39 cents on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures similarly climbed 28 cents, or 0.5%, to $60.46 a barrel, adding to Tuesday’s rise of 48 cents.

Oil price gains over the past week have been underpinned by signs of a strong economic recovery in China and the United States, but have been capped by concerns over stalled vaccine rollouts worldwide and soaring COVID-19 infections in India and Brazil.

Nevertheless, the Organization of the Petroleum Exporting Countries (OPEC) tweaked up its forecast on Tuesday for world oil demand growth this year, now expecting demand to rise by 5.95 million barrels per day (bpd) in 2021, up by 70,000 bpd from its forecast last month. It is banking on the pandemic to subside and travel curbs to be eased.

“It was a welcome prognosis by the market, which had been fretting about the impact the ongoing pandemic was having on demand,” ANZ Research analysts said in a note.

Further supporting the market on Wednesday, sources said data from the American Petroleum Institute showed crude stocks fell by 3.6 million barrels in the week ended April 9, compared with estimates for a decline of about 2.9 million barrels from analysts polled by Reuters.

Traders are waiting to see if official inventory data from the U.S. Energy Information Administration (EIA) on Wednesday matches that view.

Market gains are being capped on concerns about increased oil production in the United States and rising supply from Iran at a time when OPEC and its allies, together called OPEC+, are set to bring on more supply from May.

“They may have to contend with rising U.S. supply,” ANZ analysts said.

EIA said this week oil output from seven major shale formations is expected to rise by 13,000 bpd in May to 7.61 million bpd.

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