The Daily Update - Another Day for Central Banks

The Daily Update - Another Day for Central Banks

It’s another one of those central bank days today, with the European Central Bank, Bank of England and not forgetting the TCMB (the Turkish Central Bank) announcing policy decisions this afternoon. Although the last decision to raise rates in the UK was unanimous, and subsequent relatively strong data has supported their decision, today the Bank unanimously decided to hold its policy rate at 0.75% (and may remain the case until after Brexit) signaling continued caution over the near-term uncertainties of leaving the EU.

The Daily Update - UK's decade of dovishness

As eyes are on the US Fed minutes release later today, spare a thought for the Bank of England quietly celebrating (if you can call it that) a decade of dovishness. It may not feel like it has been that long but today marks a decade since the last interest rate rise for the UK. The 12 months prior to this (between 2006 and 2007) saw 5 hikes to a peak of 5.75% on the 5th July 2007. It wasn’t long before the subprime mortgage crisis contaminated global markets with the Bank of England cutting rates 3 times to settle at 5% for a while, only to see an international banking crisis ensue, plunging rates across the world.

The Daily Update - FOMC still looking for 'some further evidence'

As widely anticipated, with just 6 days before the US Presidential Elections and without a scheduled press conference, the FOMC held off raising rates at least until the next meeting on December 13-14. This now means that it will have been a whole year since the last Fed rate hike last December back when markets were pricing in 4 rate rises in 2016. Now there is only a 78% expectation that there will be just one hike, although this is up from the 70% expectation of Fed action prior to the release as ‘the case for an increase in the federal funds rate has continued to strengthen’.

The Daily Update - Central Bank policy meeting

Between today and next week we will hear from a number of central banks on their policy decisions. As we expected, this morning Sweden's Riksbank held rates at -0.5%. Although it highlighted its anaemic inflation concerns adding an upturn will need continued support by way of holding the current repo rate at -0.5%; six month longer than what was assumed in September. It also stated that ‘actions of other central banks’ will affect its ‘decision to extend purchases’ stating its willingness to extend its asset purchase programme in December. Away from inflation, there have been a few economic data prints which have surprised on the upside; unemployment fell in September and October’s consumer confidence read beat market expectations as a result of recent stronger economic growth. Although growth forecasts for 2016 and 2017 have been cut to 3.2% and 2.2% respectively.

The Daily Update - The road to fiscal stimulus

On what is another relatively quiet summer’s day in financial markets, the only thing that stands out is the increasing rhetoric over the use of fiscal policy; either in conjunction with, or as a substitute for rapidly diminishing monetary policy options.

The Bank of England stands out as a classic case. Faced with a Brexit scenario, the BoE’s response has been to slice interest rates to a record low 0.25% and expand its quantitative easing programme by £60bn worth of gilts and £10bn of corporate bonds. The decision was thought to be more pre-emptive than reactive (although a meeting later than what was initially suggested), and economic data releases since, although too early to tell, have surprised on the upside.

The Daily Update - Not all European government bonds were created equal

Yesterday the Bank of England (BoE) found itself unable buy enough long dated gilts as investors continue to cling on to developed government bonds of all varieties. Following the BoE’s decision to cut the UK base rate and expand its quantitative easing programme by £60bn it only managed to receive offers to purchase £1.12bn of gilts with maturities over 15 years versus their target of £1.17bn. At least part of the reason for this shortage of availability is the more illiquid markets over the summ er – indeed the ECB overbought in earlier months in expectation of such illiquidity but the recent post Brexit expansion of QE obviously had no such option. This prevailing shortage, versus demand, of government bonds looks likely to remain a prolonged dilemma for central banks and investors alike.

The Daily Update - BoE conundrum

Tomorrow sees probably one of the most important policy decisions from the BoE in recent history as futures markets have priced in a 100% chance of a cut in rates; to the lowest level on record. The Brexit effect has seen a deterioration in the UK’s economic fundamentals; business confidence now sits near financial crisis levels, manufacturing shrank at its fastest pace in three years in July and construction has rapidly contracted. No doubt the central bank will forecast much lower growth and higher inflation in the UK for the next couple years. In fact, the IMF slashed its growth forecasts for the UK to 1.7% in 2016 and 1.3% for 2017. Interestingly though, despite these being some of the sharpest downgrades, the IMF still expects the UK to expand at a faster rate than Germany and France for example.

The Daily Update - What would the martians think...?

Thirty years ago today the Soviets launched the then biggest space station, Mir, and just yesterday some reports suggested that NASA cut the video feed from the International Space Station due to a UFO entering the Earth's atmosphere. If that is the case and martians did come to Earth to visit, they should jump in a helicopter instead, if Cleveland Fed Loretta Mester’s surprising statement is anything to go by.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.