Peder Beck-Friis, (Portfolio Manager, Global Macro PIMCO) | BoE will announce its next policy decision on Thursday (noon, UK time). We expect them to leave the policy rate unchanged at 0.1% and to add +100bn of QE purchases. This is in line with market pricing.
David Page (Head of Macro Research at AXA Investment Managers) | The Bank of England (BoE) today announced its monetary policy decision for May. It left the Bank Rate unchanged at 0.10% as widely expected, by unanimous vote. It also left QE unchanged, leaving the Asset Purchase Facility target unchanged at £645bn. This was in line with the median consensus forecast, but we had expected a £100bn increase in QE today as the current programme is set to expire in early July. This was by split decision, with two members voting for an immediate £100bn increase. The majority of the Committee decided to wait for “more information… that was likely to become available over the coming weeks”, but these members “all” acknowledged prospective weakness in the economy and downside risks to the medium term outlook “might necessitate further monetary policy action to support the economy in the future”. We fully expect the MPC to increase QE, probably by £100bn at its next meeting on 18 June.
It came as a surprise for market makers: the Bank of England left borrowing costs at 0.5% on Thursday in spite of the Brexit fears. Also, the central bank will keep the size of the Asset Purchase Programme at £375 billion and hinted it could launch a stimulus package in August. The pound spiked to two-week high and FTSE 100 turned negative after the announcement.
MADRID | The Corner | Euro area industrial production, the BoE Inflation Report and UK labour market data will be watched closely today. Barclays analysts expect euro area production to rise 0.7% m/m in September, partially offsetting August’s sharp drop. The Inflation Report is likely to shed light on recent BoE policy decisions, including possible downward revisions of its inflation and unemployment forecasts. UK consumer inflation fell to 1.2 per cent in September, a hefty 0.5 percentage point lower than the BoE expected just three months ago.
MADRID | The Corner | Historically, German housing prices have remained flat, but since 2011 they have increased by 30% (a low figure when compared with +150% growth of the last 15 years in UK, France and Spain). Morgan Stanley analysts already see signs of recovery in the German residential sector, so the stocks exposed to it may be attractive. Moreover, housing prices in the UK have fallen significantly more than expected: 40% in August from 48% in July, instead of the 47% expected fall. It’s the lowest level of the past 12 months. According to Bankinter, this is a good sign “because it dissipates the fear of a possible housing bubble and reduces the BoE arguments to raise its main interest rate in advance.”
MADRID | By J. J. Figares (LINK) | On Wednesday, the minutes of the last meeting of the Monetary Policy Committee of the Bank of England (BoE) were published. Although 9 of its members voted to retain unchanged its program of asset purchases in secondary markets, 2 of them, Ian McCafferty and Martin Weal, they voted against the proposal to keep interest rates reference at the current level of 0.5% and advocated to increase them by a quarter percentage point.
MADRID | The Corner | Central bankers are meeting this week in Jackson Hole to talk about employment and its weakness in general terms. Unlike what is happening in Europe, US and UK are seeing improvement in employment (their unemployment rates have decreased from 10% to 6.2% and from 8.4% to 6.4%, respectively) with the curiosity that they’re not coming with wage increases. In fact, last British data shows the first fall since 2009. This circumstance means less inflationary pressures, therefore Bankinter analysts think that central banks will not start to tense its monetary policy until wages begin to invigorate, something that will take some months to arrive.
MADRID | Bankinter Analysis | 3Q Perspectives. Economic cycle speeds up and, mostly, gains soundness and reliability. Global growth will consolidate in 2014/2015 by +3%/+4% with positive news for developed countries and less favorable surprises in emerging markets. Japan and India are the exception to this rule. Spain will also amaze and main economic risk will lie in regional regional integrity issues whose aftermath may be undervalued, regardless the final scenario.
MADRID | By Ana Fuentes | As ECB officials spend their time debating what form of QE the euro zone needs to fight deflation risk (note that although its inflation target is 2%, the central bank keeps on sitting on its hands while its balance sheet is shrinking), more data point to the positive effects of unconventional measures on growth. Check this one recently published by the Bank of England: the mere announcement of a QE shot corresponding to 1% of GDP caused a 0.36% real GDP increase and a 0.38% CPI rise in the U.S. –a little less in the U.K. Indeed, hope can move mountains… and money.
MADRID | By Luis Arroyo | The economic cycle goes up and down. But after a terrible crash as the one we have suffered, following a crazy boom, amid staggering losses of capital and jobs, you would be deluded to believe that the economy will fix itself.