The major talking point today is Jerome Powell’s first testimony to the House Financial Services Committee as Fed Chair… (Unless you’re in London, then it’s probably the few inches of snow that we’ve not seen here in years. This so called “Russian snow storm” still isn’t the -20 degrees centigrade blizzard with record breaking snowfall that it was in Moscow.)
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.
Happy Thanksgiving to those of you celebrating today. Donald Trump’s call for unity in his Thanksgiving holiday address was well received; we do hope that divisions globally begin to heal.
Today should be a typically quiet market day with the US out feasting on ~46 million turkeys. Obama performed his last ever turkey pardon as president with Tot and back-up ‘vice-turkey’ Tater living to fight another day. Meanwhile back in the UK, one of our colleagues is still trying to track down a Meleagris gallopavo.
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.
Flight-to-safety-week continues today after four of the most influential central banks laid down their monetary policy; all unchanged!
As uncertainty over the UK’s membership with EU continues to dictate market sentiment, it was no surprise that the Bank of England maintained its policy stance. In fact the market is currently pricing in a higher probability of a cut than a rate hike, well into 2017. The yield on the benchmark 10, 20 and 30 year UK Gilts have fallen to record lows this week, showing just how pessimistic the market view is. Sterling has also taken a beating, falling over 2.2% against the dollar just this week and hit multi-year lows versus the Japanese yen, at time of writing. According to Bloomberg economists, sterling is at risk of falling by as much as 20% against the dollar from current levels, if voters elect to leave, with median estimates calling for a rally up to around $1.45-$1.50 in the event that the UK remains.