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EURUSD hovers around 1.1800 - AM Briefing
29 Sep 2017
Trump tax reform lifts Wall Street - AM Briefing
28 Sep 2017
What is the Fed trying to tell us? - PM Bulletin
27 Sep 2017
Yellen struggles with inflation - AM Briefing
27 Sep 2017
Can cable’s rally continue? - PM Bulletin
26 Sep 2017
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26 Sep 2017
EURUSD slips again - PM bulletin
25 Sep 2017
Merkel scrambles to form coalition - AM Briefing
25 Sep 2017
Caution ahead of weekend - AM Briefing
22 Sep 2017
Fed Meeting Post-Mortem - Video Update
21 Sep 2017
Fed signals another rate hike - AM Briefing
21 Sep 2017
Trading subdued ahead of Fed meeting - Video Update
20 Sep 2017
Fed expected to reduce balance sheet - AM Briefing
20 Sep 2017
FOMC and balance sheet reduction - PM Bulletin
19 Sep 2017
Dow hits fresh record high - AM Briefing
19 Sep 2017
EURUSD continues to trend higher - PM Bulletin
18 Sep 2017
Global indices storm higher - AM Briefing
18 Sep 2017
Investors shrug off NK missile test - AM Briefing
15 Sep 2017
Sterling soars after BoE meeting - Video Update
14 Sep 2017
Bank of England meeting in focus - AM Briefing
14 Sep 2017
Look-ahead to the BoE monetary policy meeting - Video Update
13 Sep 2017
Sterling bounces as inflation picks up - PM Bulletin
12 Sep 2017
Wall Street rally lifts sentiment - AM Briefing
12 Sep 2017
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08 Sep 2017
ECB meeting in focus - AM Briefing
07 Sep 2017
EURUSD soars during Draghi’s press conference - Video Update
07 Sep 2017
ECB meeting, a look-ahead to Thursday - Video Update
06 Sep 2017
Wall Street wobbles, but closes off lows - AM Briefing
06 Sep 2017
WTI recovering as clean-up continues - PM bulletin
05 Sep 2017
Investors shrug off North Korean threat - AM Briefing
05 Sep 2017
North Korean nuclear test boosts gold - PM Bulletin
04 Sep 2017
North Korea rattles markets - AM Briefing
04 Sep 2017
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01 Sep 2017
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 Thursday 14 September 2017

Bank of England meeting in focus - AM Briefing

 

 

Early moves

·         Sterling steady ahead of rate decision

·         Bank expected to stay on hold

Cable hit a fresh 12-month high yesterday morning before it pulled back on profit-taking ahead of the Bank of England’s rate setting meeting later today. Sterling surged higher on Tuesday after Headline CPI spiked up to 2.9% raising fears that UK inflation is taking off to the upside. The news made it more likely that Ian McCafferty and Michael Saunders would once again vote for an immediate rate hike. However, the inflation pick-up also spurred speculation that at least one other MPC member may join them. But yesterday saw a pull-back in Average Earnings which dampened hawkish speculation to some extent. Given that the Bank has forecast a 3% peak in inflation next month, and that sterling’s recent rally should eventually weigh on inflation, the expectation is that there will be no change to the Bank Rate at this meeting. However, if there’s any outright hawkishness in the accompanying statement, traders may see that as a green light to push the GBPUSD up to resistance around 1.3400/1.3450.

Stock Index Update

·         US majors end higher again

·         Talk of tax cuts/reform lifts sentiment

European indices ended mixed yesterday but with a slight upside bias. Investors seemed happy to follow Wall Street’s lead and push European equities higher. On Monday night the Dow, S&P 500 and NASDAQ all ended the session more than 1% higher. There were further gains across the US and European majors on Tuesday and the upside momentum carried through to yesterday’s session. The only exception was the FTSE100 which came under selling pressure due to sterling’s recent strength. Investors have piled back into equities and other risk assets as Hurricane Irma proved less destructive for the US than feared. In addition, there was widespread relief that North Korea got through the weekend without lobbing a missile over the heads of its neighbours. Despite this, the UN voted unanimously for fresh sanctions against North Korea. The measures will cap oil imports to the rogue state, impose an embargo on the textile trade and require inspections and monitoring of North Korea’s shipping. Finally, there is talk that an outline for tax cuts could be on US policymakers’ desks in less than two weeks’ time while US Treasury Secretary Steve Mnuchin expects tax reform to be passed before the year-end.

Commodities Update

·         Crude continues to push higher

·         Gold and silver fall sharply

Yesterday there was an update on US crude inventories from the Energy Information Administration (EIA). The numbers showed a bigger-than-expected build in crude stockpiles, but gasoline showed its biggest drawdown ever. This was much in line with data collated by the American Petroleum Institute (API) which was released after Tuesday’s close. But it’s worth remembering that the data was compiled between 1st and 7th September when Hurricane Harvey was still impacting the US. The data makes sense therefore as the storm led to a significant shut-down of refining capacity meaning that there would be increased demand from gasoline stockpiles and less demand for crude.

Despite larger-than-expected crude inventories, oil rose for the third consecutive session. Prices were boosted after the IEA forecast its strongest oil demand growth in two years. OPEC also raised its outlook for demand growth and hinted at prolonging output cuts further into 2018. OPEC also reported that its output fell in August, the first monthly decline in four months.

Gold and silver prices fell sharply yesterday afternoon. The trigger for the sell-off was the continued recovery in the US dollar which has seen the EURUSD lose around 1.6% since the end of last week. This in turn followed speculation that a US tax plan could be announced as soon as September 25th.

Early on Friday morning gold briefly topped $1,357 to hit its highest intra-day level since August 2016. At the same time silver poked its nose above $18.20 to hit its best level since April this year. Gold and silver have shot higher since early July. Both got a lift from dollar weakness which was exacerbated after Fed Chair Janet Yellen’s testimony in Washington. Dr Yellen was more dovish than expected when she suggested that the Fed could be closer to its neutral policy stance on rates than the market was estimating. She also emphasised the importance of inflation expectations when it came to monetary policy. Inflation (as measured by the Core PCE) has been trending downwards since the beginning of this year. Both precious metals have also been in demand as safe havens as investors sought out safety hedges following North Korea’s recent provocations. But nothing goes up forever in a straight line and some profit-taking and consolidation is to be expected. There’s some support for gold around the $1,320 area. Below $17.75 there’s little in the way of support for silver until it approaches $17.20.

Forex Update

·         Tax reform chatter boosts USD

·         Sterling lower ahead of BoE meeting

The US dollar bounced sharply yesterday as sellers decided to book profits following last week’s downside plunge. The trigger for the move was a suggestion that US policymakers could agree a tax reform plan in less than a fortnight.

The greenback has sold off sharply since the beginning of the year when it hit a fourteen-year high against the euro. However, a combination of factors including disappointment in President Trump’s ability to deliver on his campaign promises, a more dovish Fed (as Janet Yellen signalled the US central bank was getting close to its fed funds target rate) and an expectation that the ECB will soon begin to taper its bond purchases have all helped to undermine faith in the dollar. Last week the Dollar Index slumped below 91.00 to hit its lowest level since the beginning of 2015. The EURUSD came close to hitting 1.2100 marking its highest level since that time. The recovery comes as US Treasury Secretary Mnuchin said significant tax reform could come before the year-end.  Despite this, the trend in the greenback remains down for now, and could continue once the dollar recovers some more from its oversold condition.

The GBPUSD suddenly pulled back from a 12-month high hit early yesterday morning. This followed news that wages were still lagging inflation. On Tuesday sterling soared following the release of stronger-than-expected UK inflation data. Headline CPI for August jumped to 2.9% annualised compared to 2.6% in the prior month. This latest leap in inflation comes just ahead of the Bank of England’s Monetary Policy Committee meeting. Later today the MPC will decide whether to hike rates for the first time since June 2007 or not.

The consensus view is that the Bank will keep rates steady at 0.25%, where they’ve held since August last year when the MPC cut rates after it forecast an economic catastrophe for the UK after the Brexit vote. Michael Saunders and Ian McCafferty are once again expected to call for an immediate rate hike. This will leave the vote two “for” and seven “against” increasing the Bank Rate. But if other members see the pick-up in CPI as a reason to join Saunders and McCafferty, we could see cable make further gains and close in on resistance around the 1.3400/1.3450 area.

Upcoming events

Today’s significant events and economic data releases include the Bank of England’s rate decision and Monetary Policy Statement. From the US we have an inflation update with Headline and Core CPI together with Weekly Jobless Claims. Later in the day German Bundesbank President Jens Weidmann will speak about monetary policy after a crisis at Goethe University, Frankfurt.

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Posted by David Morrison

Category: AM Bulletin


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