Currently viewing the tag: "UK"
View: Economic weakness more of a risk for GBP than Gilts, like duration
The timing of Nigel Lawson’s observation that George Osborne should relinquish his role as chief Conservative chief party strategist to focus on the more important role of Chancellor has proved to be rather well timed with this morning’s first look at Q2 GDP showing the UK economy shrank at a dire -0.7% q/q rate, well below the median forecast of -0.3% q/q, leaving y/y growth at -0.8%. Ouch. The market was quick to seize on the positives, citing the Jubilee effect which most seem to think knocked 0.5% of the quarterly growth reading not to mention the rain which lasted a lot longer than that extended weekend. But this doesn’t alter the fact that the reading missed the median guess (who knew about the bank holiday and might have also looked out of the window at some point in Q2) by a significant margin and leaves us with three consecutive quarters of contraction in this double dip.
Full report below…
View: BoE demand to keep back of the curve steep, close 30yr-10yr flattener
It wasn’t a great surprise to see the BoE dust of its tool bag this morning, delivering a further £50bn increase in its asset purchase programme while leaving base rates on hold at 0.50%, as we and pretty much the rest of the market expected. There had been some calls for more (£75bn), as a signal of intent really, but the bank doesn’t look particularly constricted by delivering ‘just’ another fifty which will be deployed over the next four months, bringing the printing cycle back into line with the quarterly inflation reports. We were disappointed as to how this cash will be disbursed, evenly across the existing maturity buckets when we’d been hoping for some additional duration. It will be interesting to see how this impacts liquidity, currently the BoE won’t buy bonds once its holdings hit 70% of outstanding stock, the GBP375bn QE programme in comparison is equivalent to around 37.5% of UK debt stock.
Full report below…
View: Investors will reward measures for growth, see any Fed easing as DXY positive
Often the market makes demands on policy makers and often they are unwarranted, triggered by swings in short-term sentiment rather than changes in trend. However the monetary policy decisions we’ve seen over the past week or so seem to be somewhat different, highlighting a number of key issues that run deeper and are likely to have prolonged implications for markets and possibly mark the trigger point for the breakdown of some of the relationships that have driven markets since the onset of the financial crisis. More specifically we think we could be at that point where growth steps into the driving seat as investors focus more directly on debt sustainability. Central bank stimulus, or lack of it, should also be seen in this light. The impact of resultant interventions are also likely to differ to the inflationary effect we saw previously, be it equity prices or commodity moves.
Full report below…
