Connect with us


Bank of England Says Smooth Brexit Could Mean Faster Rate Increases



  • Bank of England Says Smooth Brexit Could Mean Faster Rate Increases

The Bank of England said it may need to raise interest rates faster than the market suggests, assuming that Brexit goes well.

While it didn’t say what deal would be best for the U.K., its latest forecasts are based on the assumption that the adjustment to a new relationship with the European Union is “‘smooth.” That means avoiding the so-called cliff edge where the U.K. leaves after the two-year negotiation period without transitional arrangements in place.

If the economy grows as expected, “then monetary policy will need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections,” the Monetary Policy Committee said on Thursday in London.

Click here to set a reminder to watch Mark Carney’s press conference from 12:30 p.m. London time

It made the assessment alongside its latest policy decision and updated economic forecasts. The panel kept the benchmark interest rate at a record-low 0.25 percent, though Kristin Forbes dissented again, voting for an immediate increase. Others on the committee said it may not take much upside news for them to switch to her position.

In a quarterly update, officials cut their forecast for growth this year to 1.9 percent from 2 percent, though they raised it for the following two years and said expansion will remain around trend over the period.

Growth slowed to 0.3 percent in the first quarter, the weakest in a year, though the bank expects the figure to be revised up to 0.4 percent. Forbes said the initial reading exaggerated the extent of the slowdown.

Reflecting the weaker pound, the MPC lifted its 2017 inflation projection to 2.7 percent from 2.4 percent, meaning a bigger overshoot of its 2 percent target. The bank sees a slightly weaker path further out but expects inflation to be accelerating again at the end of the three-year forecast period. It also warned that domestic price pressures could be building at that time.

The pound fell against the dollar after the release of the Inflation Report and was at $1.2889 as of 12:20 p.m. London time, down 0.4 percent on the day.

“The medium-term inflation forecast is lower and that’s why markets have taken it as dovish,” Alan Clarke, an economist at Scotiabank in London, said by telephone. “All in all, it signals they’re moving no time fast.”

In addition to the crucial Brexit assumption, the latest forecasts are based on a rate increase not being fully priced in until the end of 2019. In February, the curve had priced in a hike by the first quarter of that year.

While inflation is set to reach 2.8 percent by the end of 2017, the BOE is balancing its price concerns against the threats from Brexit and weak wage growth.

It expects almost no increase in real incomes this year and sluggish consumer spending, though that will be offset by investment and exports. Wages will pick up in 2018 and 2019 as unemployment falls and the output gap closes, which will increase domestic price pressures.

The insights from the Inflation Report are the first in weeks. The snap general election called by Prime Minister Theresa May put policy makers into purdah from the middle of last month.

The MPC was short one member at this decision after Charlotte Hogg left the bank. She resigned after failing to disclose a potential conflict of interest.

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

Crude Oil

Oil Posts 2% Gain for the Week Despite India Virus Surge



Crude Oil - Investors King

Oil prices steadied on Friday and were set for a weekly gain against the backdrop of optimism over a global economic recovery, though the COVID-19 crisis in India capped prices.

Brent crude futures settled 0.28% higher at $68.28 per barrel and U.S. West Texas Intermediate (WTI) crude advanced 0.29% to $64.90 per barrel.

Both Brent and WTI are on track for second consecutive weekly gains as easing restrictions on movement in the United States and Europe, recovering factory operations and coronavirus vaccinations pave the way for a revival in fuel demand.

In China, data showed export growth accelerated unexpectedly in April while a private survey pointed to strong expansion in service sector activity.

However, crude imports by the world’s biggest buyer fell 0.2% in April from a year earlier to 40.36 million tonnes, or 9.82 million barrels per day (bpd), the lowest since December.

In the United States, the world’s largest oil consumer, jobless claims have dropped, signalling the labour market recovery has entered a new phase as the economy recovers.

The recovery in oil demand, however, has been uneven as surging COVID-19 cases in India reduce fuel consumption in the world’s third-largest oil importer and consumer.

“Brent came within a whisker of breaking past $70 a barrel this week but failed at the final hurdle as demand uncertainty dragged on prices,” said Stephen Brennock at oil brokerage PVM.

The resurgence of COVID-19 in countries such as India, Japan and Thailand is hindering gasoline demand recovery, energy consultancy FGE said in a client note, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.

“Gasoline demand in the U.S. and parts of Europe is faring relatively well,” FGE said.

“Further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season.”

Continue Reading


Lagos Commodities and Futures Exchange to Commence Gold Trading



gold bars

With the admission of Dukia Gold’s diversified financial instruments backed by gold as the underlying asset, Lagos Commodities and Futures Exchange is set to commence gold trading.

According to Dukia Gold, the instruments will be in form of exchange-traded notes, commercial papers and other gold-backed securities, adding that it will enable the company to deepen the commodities market in Nigeria, increase capacity, generate foreign exchange for the Nigerian government to better diversify foreign reserves and create jobs across the metal production value chain.

Tunde Fagbemi, the Chairman, Dukia Gold, disclosed this while addressing journalists at Pre-Listing Media Interactive Session in Lagos on Thursday.

He said, “We are proud to be the first gold company whose products would be listed on the Lagos Futures and Commodities Exchange. The listing shall enable us facilitate our infrastructure development, expand capacity and create fungible products.

“This has potential to shore up Nigeria’s foreign reserve and create an alternative window for preservation of pension funds. A gold-backed security is a hedge against inflation and convenient preservation of capital.”

“As a global player, we comply with the practices and procedures of London Bullion Market Association and many other international bodies. Our refinery will also have multiplier effects on the development of rural areas anywhere it is located,” he added.

Mr Olusegun Akanji, the Divisional Head, Strategy and Business Solutions, Heritage Bank, said the lender had created a buying centre for verification of quality and quantity of gold and reference price to ensure price discovery in line with the global standard.

Continue Reading

Crude Oil

Oil Nears $70 as Easing Western Lockdowns Boost Summer Demand Outlook



Crude oil

Oil prices rose for a third day on Wednesday as easing of lockdowns in the United States and parts of Europe heralded a boost in fuel demand in summer season and offset concerns about the rise of COVID-19 infections in India and Japan.

Brent crude rose 93 cents, or 1.4%, to $69.81 a barrel at 1008 GMT. U.S. West Texas Intermediate (WTI) crude rose 85 cents, or 1.3%, to $66.54 a barrel.

Both contracts hit the highest level since mid-March in intra-day trade.

“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.

“The jump in oil prices came amid expectations of strong demand as western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.

Crude prices were also supported by a large fall in U.S. inventories.

The American Petroleum Institute (API) industry group reported crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels.

Traders are awaiting data from the U.S. Energy Information Administration due at 10:30 a.m. EDT (1430 GMT) on Wednesday to see if official data shows such a large fall.

“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.

The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in the United States and Europe.

Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.

“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.

This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.

“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.

Continue Reading