So Super Thursday, the highly anticipated biggest UK monetary policy event of the year, wasn’t that super after all. As expected, the Monetary Policy Committee neither commenced its monetary tightening cycle, nor altered the GBP 375bn asset purchasing scheme, citing “greater persistence of low inflation” below 1% until the end of the year and the subsequent downward pressure on wage growth. The central bank did however revise its growth forecast to 2.2%, from 2.5%, with growth at 2.4% next year; not all bad though as the UK still remains one of the fastest growing developed economies.
Across the pond, the January US non-manufacturing ISM reading sent markets into a bit of a tiz yesterday; as it slipped to the weakest reading since early 2014. The employment component did cause some concern, having fallen to a one year low. The dollar witnessed its third-largest one-day fall in five years, -1.06% measured by the DXY Index; dovish comments from the Fed members did little to support sentiment. New York Fed President Dudley opined that “financial conditions are considerably tighter” than they were back in December, adding that if current conditions remain, the Fed will have to temper rate expectations going forward. Fed Fund futures erased any bets for a rate increase this year, while the Fed maintain as many as four rate hikes are possible in 2016.
Forget policy tightening, news reports have turned more bearish of late, suggesting the recent data prints indicate a US recession is back on the cards. Regular readers will be aware that this has been somewhat concerning us, even ahead of the Fed’s tightening move at the back end of last year. According to the FT survey of 51 economists, 20% see a chance of a US recession this year; this was just 15% in December. Long-term inflation expectations have hit lows not seen since the great recession of 2009; the market's obsession with oil prices obviously has a huge part to play. The one sector of the economy which continues to show strength is the job market; we look to the much awaited employment releases tomorrow for any further hints, after the strong (+292k) reading in December, markets consensus is for an additional 190k jobs in January, with employment sticking at 5.0%.