- Pound Unlikely to Get BOE Boost as ‘Smooth’ Brexit Doubts Build
The pound is unlikely to find any support from this week’s Bank of England meeting, according to analysts and fund managers, with officials likely to refrain from signaling tighter monetary policy amid slowing wage growth and political disorder in the U.K.
Even with inflation at a four-year high, analysts remain doubtful that Governor Mark Carney will talk up prospects of higher interest rates, like he did in May, given the inconclusive result of the June 8 election and intensifying squeeze on consumers. Last month the central bank said its rate outlook was based on the assumption of a smooth Brexit.
With the possibility of a weaker government facing the European Union at the negotiating table, the BOE might find it tougher to reiterate that view, thus making it harder for the pound and gilt yields to rise, analysts said.
- The central bank will leave its benchmark rate unchanged at 0.25 percent, according to all 48 economists in a Bloomberg survey
- In the May meeting, of the eight Monetary Policy Committee members only Kristin Forbes dissented, voting for an immediate increase
- Markets see a near 45% chance of a rate increase by December 2018, MPC-dated Sonia show
- They’re also pricing in around a 24% chance of a 25-basis-point rate increase by mid-2018, which is in contrast to the near-50 percent chance seen as recently as in March
- GBP/USD at $1.2732, down almost 2 percent since the election, and yield on 10-year gilts at 1.02%, down 2 bps from June 8
Below is a compilation of investors’ and analysts’ expectations for the meeting, and the outlook for gilts and the pound:
Mizuho Bank (Sireen Harajli, Neil Jones)
- The uncertainty “cast by a hung parliament will drive the Bank of England to shift toward a more dovish stance,” according to FX analyst Harajli
- Expects BOE policy will remain steady this year with the possibility of easing in 2018
- Speculators, who had been trimming GBP short positions over past weeks might reverse that position due to the election results “leaving GBP vulnerable to more downside risk as GBP shorts are re-built,” Harajli says, predicting sterling will reach $1.22 by year-end
- Wednesday’s wage numbers mean the MPC could shift back to a “unanimous dovish 8-0 stance” this week or in the next meeting, according to Jones
Allianz Global Investors (Mike Riddell, money manager)
- The BOE assumption “of a smooth transition is now looking even more unlikely” after the election
- Over the medium to long term Riddell says he is “mildly constructive” on gilts as the risks to the U.K. economic outlook “are to the downside”
- Riddell was bullish gilts going into the BOE meeting in May and says the central bank is likely to “be more dovish than the market seems to expect”
- The difference between now and back in May is that the “market is not pricing in a series of rate hikes and gilt yields are a lot lower”
- Riddell still has “a slightly bullish position but it is not a high conviction view as markets have already moved a little” in gilts
JPMorgan Asset Management (Iain Stealey, senior fixed-income portfolio manager)
- Expects the BOE to look through what it calls “transitory inflation” which it may see as “almost a tax on the consumer so they are not going to want to do anything”
- Stealey says he prefers to stick to their neutral gilts stance as they “would prefer to let the dust to settle”
- “It’s very hard to buy gilts at 1% on the 10-year, likewise if the BOE aren’t moving rates higher, it is very difficult to build a case to be short gilts when you have all this uncertainty going on”
- “Bottom line is no one really knows what the election from last week created and the BOE has no more insight than we have”
Commerzbank (Thu Lan Nguyen, FX strategist)
- The BOE “will broadly stick to their latest assessment and at the most point out that political risks have increased”
- There may be some “that hope that the BOE signals a higher likelihood of imminent rate hikes following the latest inflation figures. However, I think that this is counterweighted by the heightened political risk”
- So there could be some that may be “disappointed by the fact that the BOE remains cautious, which could put some pressure on pound”
- With the election outcome and impending EU negotiations “the probability of a negative scenario for the British economy has increased, which will force BOE to keep a more expansionary monetary policy for some time,” she says
- Predicts sterling will fall to $1.21 by the end of this year but says it could revise that number to the upside if “the new government seeks a softer Brexit”
Global Markets Near Record Peaks and Will Get Stronger: deVere CEO
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.”
Refinitiv Expands Economic Data Coverage Across Africa
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.
Oil Rises on Drawdown in U.S. Oil Stocks, OPEC Demand Outlook
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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