Posts belonging to Category Quantitative Easing

ECB monetary policy left unchanged

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.
The ECB left monetary policy unchanged, as expected, with the refinancing rate remaining at 0.00% and the deposit rate at -0.4%. The euro briefly spiked higher after Mario Draghi said that there was no discussion, either on tapering the QE programme or extending it beyond the original deadline of March 2017.

Whilst sterling finished strongly on the euro, it wasn’t reciprocated on the US dollar, as strong US housing data released had the greenback soaring late in the session.

Portugal’s government bond yields at six week interst rates low

This morning, Portugal’s government bond yields are hovering near six week lows, ahead of a key review by Canadian ratings firm DBRS, out after the close of play today. Whilst this is slightly concerning for Portugal, they are expected to get through the test unscathed. If it were to be downgraded, it would fall out of the ECB’s QE programme.

Wise Money news to come

Today is fairly thin in terms of wise money news data, however we do have UK public finance figures out this morning. Whilst expected in lower than last month’s number, a lower figure shouldn’t dampen Sterling’s resurgence on the euro too much. Aside from this, most of the day will be spent interpreting the ECB press conference from yesterday, with many investors keenly watching Sterling/euro advances.

Sterling performs well thanks to record UK jobless

Sterling had a much better day trading yesterday against all its major currency pairings, as the UK Jobless Claims total fell to a record 1.64 million.

Sterling had a much better day trading yesterday against all its major currency pairings, as the UK Jobless Claims total fell to a record 1.64 million.

The numbers from April to June showed that the total fell by just over 50,000, with official figures indicating 31.75m people (74.5%) are currently in work.

Wages with and without bonus’ also showed gains, as the current claimant count for July displayed an 8,000 drop in actual claimants since the surprise Brexit vote.

Conversely Fed Reserve hints at interest rate hike

The minutes of July’s Federal Reserve meeting has hinted at another interest rate hike before the end of the year, but there was a clear division between members.

The FOMC looked to be nearing another move, as job growth and the sharp market recovery (post Brexit) has been a major factor; but a low inflation figures lack of rise, and staying towards its 2% target is still a concern.

With unemployment levels in the US below 5%, one Fed Member, Esther George, wanted a further hike in rates as ‘the economy is at or near full employment’.

Money news to come

Today we see GBP Retail Sales, Eurozone Construction Output & Consumer Price Index, along with Initial Jobless Claims and Continuing Claims.

UK interest rate debate continues

The Bank of England’s deputy governor for monetary policy has said that it would be “foolish to preannounce” a date for an interest rate increase.

UK interest rate debate continuesYesterday the Bank’s Monetary Policy Committee voted to keep interest rates at their current historic low of 0.5%.

Deputy governor Ben Broadbent said the Committee had no specific time in mind for a rise and comments by governor Mark Carney had been misinterpreted.

The interest rate has remained unchanged for 78 months.

The ultra low interest rate regime has boosted the housing market as homeowners enjoy record low mortgages rates, but penalised savers whose returns have dwindled to almost nothing.

Speaking to Radio 5 live’s Wake up to Money programme, Mr Broadbent said: “We are responding to things that are essentially… unpredictable.  And that means that it would not just be impossible, it would be foolish to pre-announce some fixed date of interest rate changes.”

Mr Broadbent said he saw no “urgency” to increase interest rates at present.

He added: “The economy clearly is recovering, but we had the most almighty financial crisis and there is still a bit of spare capacity left.”

“There is not that much inflationary pressure at the moment, [although] we expect that to build over time.”

The Consumer Prices Index, the most commonly used measure of inflation, fell to 0% in June, while earlier this week, the cost of a barrel of crude oil fell below $50, its lowest point since April.

Despite problems in the wider global economy, caused by the continuing crisis in Greece and fall in Chinese stock prices, Mr Broadbent said the overall outlook for the UK remained steady.

“We’ve seen unemployment come down pretty steeply,” he said, “and some signs of improving productivity growth. We’ve seen a material pick-up in wage growth, not sufficient to give us any big inflationary risk.

“But all of that would naturally lead to the case for some normalisation of interest rates to start building.”

He added that the economic recovery looked “well embedded and solid”, with the Bank expecting “steady growth over the next two years”.

Mr Broadbent was responding to media coverage of remarks made last month by the Bank’s governor, Mark Carney.

In a speech at Lincoln Cathedral on Monday Mr Carney gave what was interpreted as his clearest hint yet that the cost of borrowing would go up before 2016.

He said: “The decision as to when to start such a process of adjustment will probably come into sharper relief around the turn of this year.”

UK government borrowing falls in June after record tax haul

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlier- as income and corporation tax receipts rose to record levels.

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlierThe Office for National Statistics (ONS) said income tax receipts rose to £11.5 billion, while corporation tax brought in £1.7 billion- both record monthly highs.

It was lowest borrowing figure for June since 2008. However analysts had been expecting it to drop further to £8.5 billion.

In the financial year so date UK Government borrowing has fallen by £6.1 billion to £25.1 billion.

The ONS figures showed government finances received a £117 million boost last month from a fine paid by Lloyds Banking Group over its handling of payment protection insurance (PPI) complaints.

In the summer Budget earlier this month, the Office for Budget Responsibility (OBR) forecast public borrowing would be £69.5 billion this year.

Public sector net debt at the end of June 2015 was £1.513 trillion, or 81.5% of annual UK economic output- up from 80.8% in May.

A Treasury spokesperson said the figures showed the UK government’s deficit reduction plan was working but added “the job is not done”.

The UK government is aiming to eliminate the budget deficit by 2019 and to run a £10 billion surplus in 2020 and in subsequent years.

Chancellor George Osborne announced £37 billion of spending cuts during this parliament in the summer Budget.

In November, the government’s spending review will set out £20 billion worth of departmental budget cuts over the next five years.

UK economic growth slows to 0.3pc

The rate of economic UK growth has halved in the three months to the end of March- marking the slowest quarterly growth for two years.

UK economic growth slows to 0.3pcThe UK economy grew by 0.3% in the quarter according to the Office for National Statistics (ONS) said.

That compares with 0.6% in the last three months of 2014.

The figures, which come nine days before the general election, suggest a “temporary” slowdown in the economy, analysts said.

The ONS said the economy was 2.4% larger than the same period a year earlier.

Growth of 0.5% in the services industry was offset by a 1.6% fall in the pace of economic output in construction.

The UK services sector accounts for around three quarters of economic growth, with construction, manufacturing and production accounting for the remaining quarter.

The Chancellor, George Osborne, said: “It’s good news that the economy has continued to grow, but we have reached a critical moment. Today is a reminder that you can’t take the recovery for granted and the future of our economy is on the ballot paper at this election.”

Liberal Democrat Chief Secretary to the Treasury Danny Alexander, said the figures were still progress but a warning too.

He added it was vital his party were part of the next government to ensure the “fair and balanced approach needed to secure this recovery”.

For reasons no one can quite explain, construction in Britain has been lousy for six months.

The production industries have been especially hurt by the oil price collapse, which has led to something of a crisis in the North Sea. Excluding oil and gas, quarter-on-quarter growth would have been 0.1 of a percentage point higher at 0.4%.

But nor has manufacturing been sparkling: it showed growth of just 0.1%. And perhaps because of the strengthening pound, the growth rate of our manufacturers has progressively decelerated in a straight line from 1.4% a year ago

More unexpectedly, some service industries in which the UK is a world leader – finance, engineering and architecture – have had a poor few months.

One possible explanation of their slowing growth is that demand for our services and goods in important export markets – especially China and the US – may be a bit worse than official figures show. That could be a sign of trouble ahead.

So thank goodness for our domestic facing services.

Or to put it another way, if we weren’t a nation of shoppers and restaurant eaters, there would be very little growth at all. The output of distribution, hotels and restaurants increased by 1.2% in the quarter – only slightly slower than at the end of last year.

The figures represent a first estimate of economic growth and are based on less than half of the total data required for the final output estimate.

But the ONS said that while estimates are subject to revision as more data become available, the revisions are typically small between the preliminary and third estimates.

Fed’s tapering timing crucial distraction from Syrian crisis

As most politicians were divided last week on the Syrian crisis at the G20, investors and economists remain divided on the timing of the Federal Reserve’s tapering programme.
Fed's tapering timing crucial distraction from Syrian crisis
With softer than expected data out from the US non-farm payroll figures, investors looking to flock to the US with their capital suffered a setback as the tapering programme can only be put into action with stronger employment numbers.

However, since the number was not weak at 169,000 new jobs in August against an expected number of 180 000, the Federal Reserve is still expected to announce that tapering could begin this month or early October, as Ben Bernanke will reveal early next week after the interest rate decision.

As we move into this week, US stock m arkets could be faced with considerable volatility depending on if the Congress decides to authorise a military strike against Syria. We start this morning with the Greenback slightly weaker than the previous weeks at 1.5640 GBPUSD and 1.3175 EUR USD.

Amidst expectations that the Fed will curb quantitative easing as early as this month or the next, gold has extended its losses and has fallen 17% this year.

From the UK, it was further revealed that manufacturing production has also risen for the second month in July by 0.2% adding to the already accumulated positive sentiment after a spate of good data from the economy.

With no economic data out from the UK today, expect Sterling to continue to remain strong as it has surged upwards against the greenback, post the softer job numbers to a high of 1.5650 early this morning, coupled with the evidence that suggests Britain’s economy is slowly starting to recover.

George Osborne is also expected to make a statement today to reiterate that the coalition’s plans of spending cuts and policy measures were the right step in getting Britain back on its feet towards recovery.

FED tapering fears worry wise money markets

FED induced volatility across the US Dollar crosses is the major wise money markets theme this week- after the deliberate vagueness from Chairman Bernanke over the taping of asset purchases at the end of last week.
FED tapering fears worry wise money markets
We are desperately trying to discount the effects of withdrawing stimulus, particularly withdrawing it too early, leading to whipsaw action in risk markets and across the USD pairs.

Add to the mix the best consumer confidence figure from the US since the financial crisis and the overall sentiment gets even messier to try and gauge. What exactly is the dominant trend here? An improving US economy or the Fed scaling back asset purchases, the recent volatility suggests no one is quite sure of the answer at the moment.

Apart from the usual month end flows to keep things interesting, today should be reasonably quiet because of a lack of big ticket data. Looking forward to next week there is the ECB and Bank of England monthly meetings plus US non-farm payrolls to digest.

Turning first to the central banks, both are expected to keep policy on hold, with more details from the ECB on its credit easing policy top of the agenda after announcing the bare bones of it last month. June marks the outgoing BoE governor last MPC meeting before Mr Carney takes over and he is not expected hand over with a change to the asset purchase scheme.

Non-farm payrolls for May are expected to show around 175K jobs created and the unemployment rate to continue to fall, from 7.5% to 7.4%.

Fed policy is highly unlikely to be affected to any changes to the data but the tapering effect, as the market tried to second guess the next move by the Fed is likely to be large meaning volatility is here to stay for the time being.

US Dollar gives up recent gains

The US Dollar was the main focus yesterday as US equities opened lower following on from the lower sessions in Asia and Europe.
US Dollar gives up recent gains
The fall in equities came largely from fears that the printing presses would be slowed in the US and this has largely led to a stronger US Dollar.

However comments from Fed officials soothed fears that imminent scaling back was not on the cards and this seemed to help momentum swing into USD weakness.

My thoughts are that we will need to see significant improvements above what we have seen so far in the underlying labour market conditions before the Fed commit to scaling back on asset purchases.

In Europe the European commission revealed that Spain and France are to be granted an extra two years to get their budgets into line.

The softening in tone corresponds to a change in tact away from austerity and towards growth and job creation and it will be interesting if this translates over to the UK.

Elsewhere the Bank of Canada in Mark Carney’s last meeting left rates unchanged but warned that interest rates could rise as economic conditions improved, this led to gains in the Canadian Dollar.

There is little focus for today in relation to economic data with US jobless claims the highlight with an expectation that labour market conditions should maintain their upward momentum. We also have preliminary US GDP with the expectation that the quarter on quarter figure will maintain at 2.5%.

FED finally hinting how QE cruise may end

The key developments across the markets this week have been an article giving first details on how the Fed would begin to unwind QE as the economic recovery continues.
FED finally hinting how QE cruise may end
Additionally an upgraded UK growth figure by the Bank of England in its quarterly inflation report and the  euro zone growth figures showing countries right across Europe continuing to struggle.

The higher growth figures expected by the Bank of England have lifted the pound, particularly against the Euro given the continued deterioration in growth across the continent.

The slowdown is slowly spreading from the troubled periphery into the stronger core countries, with Germany positing lower than expected Q1 GDP and France re-entering recession.

The news pushed the Euro to a one month low against the Dollar and depending on the tone of next weeks Fed meeting, where the Fed is expected to continue to discuss unwinding QE and varying the scale of asset purchases, the Dollar could have significant further upside over the coming weeks.

Next week is a busy one for the FX market, with central bank meetings and publications galore.

The Fed and Bank of Japan both have monetary policy meetings, plus we have minutes from this month’s meeting from the Bank of England and Reserve Bank of Australia. The RBA release is eagerly anticipated given the drop in interest rates took the market by surprise.

US Dollar rally on despite risk worries

Strong demand for risk assets boosted markets yesterday with Central Banks supplying the main source of support for investor risk appetite, with a mixture of lower policy rates and quantitative easing providing a major boost.
US Dollar rally on despite risk worries
Furthermore, numerous central banks seem to be talking down their currencies and/or intervening, contributing to the heavy weight versus Greenback.

Normally the Dollar would not improve during times of risk appetite, however it is finding ample support from the fact that Fed policy is set to change direction along with other central banks and the currency is breaking key levels against major currencies including EUR, JPY and AUD .

The rise in US Treasury yields is sustaining the US Dollar, aided by steadier US economic data particularly on the employment side.

Reports in the US are suggesting that the Fed is crafting an exit plan from QE, though the timing is still in question, another aspect assisting the Dollar at the start of this week.

Numerous Fed speeches over coming sessions will likely deliver further hints on any timing or plans for an exit policy. In the meantime, higher US yields and a firmer USD continue to mound pressure on gold prices.

There may be a little restraint in forcing the Greenback higher this week as US data releases are likely to look softer, with retail sales, industrial production and housing starts set to record declines.

Nevertheless, any reversal in the USD or yields could merely deliver improved levels for traders to go long the Dollar and short Treasuries especially as data elsewhere will not look much better.

Indeed, while in Europe there will be a likely bounce in the German ZEW investor confidence index in May, Q1 Eurozone GDP will record a contraction for the sixth consecutive quarter.

Promising headlines from Europe are not about bullish updates such as strong pace of growth or higher rates of return drawing in more capital.

Replacing it you will find, ‘positive’ news from the region is more of the cut of avoiding another crisis state. Yesterday discussions on both Cyprus’ and Greece’s austerity struggles, officials declared the support of a €2 billion for the former and €7.5 billion for the latter.

Nonetheless, we have seen several times before that these funds are just insignificant markers in a much longer-term fix. There are plenty of dangers ahead – and the market will maintain it’s scepticism.