Bank of England leaves interest rates on hold

Wise Money is pleased with loans interest rates news from Bank of England.

Wise Money is pleased with loans interest rates news from Bank of England.

The Bank of England rate decision meeting didn’t provide any fireworks last week, as UK policymakers voted 9-0 in favour to keep interest rates unchanged. Despite signalling further rate cuts in the future, the decision didn’t come as a surprise considering the amount of stimulus they introduced last month.

The central bank is monitoring recent data closely, and they are encouraged to see that the stimulus package seems to be working, as recent data has been fairly positive and at times even better than market expectations.

It appears that investors are still not worried about the implication of the Brexit, at least until they find out what it really means. For this they will have to wait until article 50 is invoked early next year.

Busy money market data releases

It has been a very busy 24 hours in terms of economic releases. In the US, data came in softer, led in particular by a disappointing retail sales number. Headline sales were down -0.3% last month, the first decline in 5 months. Excluding autos and gas, spending fell -0.1%. Industrial production also declined in August, printing -0.4% against a market expectation of -0.2%.

It wasn’t all bad news though, as manufacturing activity encouragingly bounced back in the New York and Philadelphia regions, but it is not enough to convince investors that the FED will have enough reasons to lift interest rates next week.

Data in Europe will be quiet with final Q2 wages numbers due out in France. In the US, investors will closely look at August CPI report with market expectations of an increase of +0.1% month on month. Those numbers also match the views of our US economists. As always in the US, the University of Michigan consumer sentiment is scheduled for release.

Pound up after bank holiday weekend

After the 3 day weekend, the markets have opened up after fully digesting the Fed Jackson Hole meeting with the Pound increasing over the bank holiday weekend.

After the 3 day weekend, the markets have opened up after fully digesting the Fed Jackson Hole meeting with the Pound increasing over the bank holiday weekend.

Janet Yellen’s suggestion that a rate rise is still likely has seen the FTSE strengthen again by 0.3%, but oil has stated to come under renewed pressure.

With a hike now potentially in September a real possibility, Brent Crude found itself trading below $50 per barrel once more and with that, the price for those who do not hold US Dollars as their base currency will find all oil based products more expensive to purchase.

Number of investments coming into UK at year high

The number of investments that come into the UK was at a year high, up a big 11%.

A number of the 116,000 jobs created were said to have been created from overseas investments, also showing the UK as the most appealing region in Europe to do business.

A number of reasons were given as to why the UK attracts so well, such as the English language (spoken globally), fair tax and EU membership, which could now become a hindering block after Article 50 is triggered.

Today’s key data is mixed in terms of geography, with UK Mortgage Approvals, Fed’s Fischer speaking on Bloomberg and German Consumer Price Index out today which may move the markets.

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 rates cut to 0.25%

The Bank of England’s has cut interest rates by half to a new record low of 0.25%.

Bank of England’s cut interest rates by half to a new record low of 0.25%.

In addition the Bank of England (BOE) launched a massive stimulus package designed to save the UK economy from recession.

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to slash interest rates to an all time low; they also hinted that it might cut rates “close to but a little above zero” and could unleash more Quantitative Easing if needed.

With a 60 billion government bond buying program and a new initiative to buy 10 billion pounds of corporate bonds, the Bank of England hope to support the necessary adjustments in the UK economy following Brexit.

Mark Carney and the Bank of England think that the outlook for growth has “weakened materially” and they anticipate that the pain will be felt in 2017 as their Quarterly Report shows 2017 forecast slashed from 2.3% to 0.8%, the largest downgrade to its growth forecast to date.

Inflation is forecasted to increase thanks to the weakness of the pound, with the Central Bank now anticipating to hit their 2% target in Q4 of 2017 as opposed to Q2 of 2018 as previously anticipated.

The unemployment rate is also expected to rise to 5.4% in Q3 2016 compared to a previous forecast of 4.9%.

From the US to Europe, other data to come

After Super Thursday, the market will look at the US non-farm payrolls. Following the strong increase in June, a majority of economists are now expecting a weaker number with job growth around 180,000 as Wednesday’s ADP employment report showed signs of softness in the employment components of both ISM reports.

Looking at the day ahead the rest of the data due out in Europe will be overshadowed. Germany factory orders numbers for June, the latest trade balance reading for France and the latest UK house price data are the main data this morning before the market turns its eyes to the July employment report in the US.

Federal Reserve likely to hold off interest rate rises as jobs falter

US non farm payroll data last week came as a rude shock to the markets at a paltry figure of 38,000 against an expected number of 164,000.

US non farm payroll data last week came as a rude shock to the markets at a paltry figure of 38,000 against an expected number of 164,000.

The US Dollar lost ground against most of its counterparts straight after the release and has now almost moved an interest rate hike in June off the table.

Analysts and hedge funds now expect the Federal Reserve to only raise rates once in 2016, against the initial mandate of the planned 3 or 4 rate hike dot curve for the year.

The EURUSD pair rallied up 2 cents though has pulled back a bit this morning as German Factory orders data have been released showing a decline to -0.2%.

Markets will now turn their attentions to Fed member Rosengren and Fed Chair Janet Yellen’s speeches later today and also keep a close eye on labour conditions data to try and determine if the non-farm payroll number was an outlier or if broader economic conditions are slowing.

Sterling is losing ground, pushed by the ‘leave’ campaign

The Pound has lost considerable ground against the board this morning as the ‘leave’ campaign continues to gather momentum in the UK’s Referendum polling.

YouGov telephone and online surveys have put the ‘Brexit’ campaign in the lead at 45% against the ‘remain’ side garnering 41% with 11% still undecided. Expect Sterling to be fairly volatile in the lead up to June 23 up to the date of the vote.

Meanwhile, investors will look towards market data comprising of BRC Retail Sales Index for interim direction though the main theme for the pound remains with the UK Referendum polls.

Central Banks keep interest rates on hold as global risks mount

US stock markets have rallied after a pickup in commodity prices as the US Dollar lost ground after the statement by the Federal Reserve.

US stock markets have rallied after a pickup in commodity prices as the US Dollar lost ground after the statement by the Federal Reserve. The Fed has left its benchmark interest rate unchanged even though the US economy is growing steadily but the Central Bank is being very cautious due to the threat and potential risks of global economic and financial turmoil.

GDP forecasts were also lowered by the Fed and markets are now expecting just 1 more rate hike later in 2016, much lower than the 4 hikes forecast earlier by the Fed.

With the Central Bank being so dovish, the Greenback lost ground against most of its counterparts though continues to find strength against the Japanese Yen.

Speeches by FOMC members Dudley, Rosengren and Bullard later today should provide further direction for the dollar, coupled with consumer sentiment data out from Michigan.

The euro has made a slight comeback after falling considerably last week after Mario Draghi’s speech boosting further quantitative easing for the Eurozone. However, a dovish Fed strengthened the euro.

Sterling strengthens across the board

Sterling has also strengthened across the board despite the Bank of England holding interest rates which was widely anticipated.

Most of the gains made were based on forecasts of slight gradual rises in inflation and growth and a dovish Federal Reserve.

Also, the Budget for 2016 was released on Wednesday and the market found a bit of cheer as GBPUSD touched its highest level for a month.

With no economic data out from the UK, markets will look towards events elsewhere for short term direction.

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 economic growth increases to 0.7% in second quarter

UK economic growth increased in the second quarter of the year- helped by a big jump in oil and gas production.

UK economic growth increased in the second quarter of the year- helped by a big jump in oil and gas productionThe UK’s economy grew by an estimated 0.7% in the April to June period, the Office for National Statistics (ONS) said which compared with growth of 0.4% in the first quarter of the year.

Britain’s recovery strengthened, as the official figures suggested growth per head was finally back to pre-crisis levels.

Output in the economy during the second quarter was 2.6% higher than the same period a year earlier, the ONS said.

“After a slowdown in the first quarter of 2015, overall GDP growth has returned to that typical of the previous two years,” said ONS chief economist Joe Grice.

The UK’s economy has now seen 10 quarters of sustained economic growth.

The ONS stressed the first estimate was based on about 40% of the available economic data and is subject to revision.

It said manufacturing output experienced its first fall in two years with output dropping 0.3% in the quarter.

However, a surge in North Sea oil and gas production lifted overall industrial output by 1% – the biggest increase since late 2010.

The “mining and quarrying” component of the industrial output figures, which includes oil and gas extraction, rose by 7.8% in the quarter, the biggest increase since 1989.

The ONS said the increase, which came despite falling oil prices, was driven by tax cuts in March designed to support the sector.

Construction was flat in the period, the ONS said, recovering from a slight fall the previous quarter.

The UK’s dominant services sector recorded growth of 0.7%, following a rise of 0.4% in the previous three months.

Domestic demand is expected to remain strong, as wages rise and with the temporary effects of low inflation boosting consumer spending.

The ONS said there were also signs that businesses were finally increasing investment.

George Osborne, the Chancellor, said the figures showed Britain was “motoring ahead”. He tweeted: “We must stay on road we’ve set out on.”

The economy is now 5.2pc larger than its pre-crisis peak, and ONS said the 0.7pc expansion in the second quarter suggested that gross domestic product (GDP) per head was now “broadly equal to the pre-economic downturn peak” in the first quarter of 2008. This is expected to be confirmed by the ONS next month.

Mark Carney, the Governor of the Bank of England, has said that “sustained growth” of “around 0.6pc per quarter” will be needed for the remaining “spare capacity” in the economy to be eliminated and for rate setters to start tightening policy.

Mr Carney said in a speech this month that the decision to raise rates would come into “sharper relief” by “the turn of this year”.

UK inflation rate goes positive

The UK inflation rate- as measured by Consumer Prices Index (CPI) rose to 0.1% in May, up from -0.1% in April.

UK inflation rate goes positiveThe biggest contribution to the rise came from transport, notably air fares, the Office for National Statistics said.

In April, CPI inflation turned negative for the first time since 1960, mainly due to a drop in air and sea fares.

ONS statistician Philip Gooding said: “Last month CPI turned negative, mainly because of falling transport fares due to the timing of Easter. This month, that fall has been reversed.”

He added that the falls in food and fuel costs over the past year “have eased this month, helping to push inflation up”.

While the prices of food and fuel rose in May from the previous month, the prices were still lower than a year earlier.

However, while the overall effect of food and fuel on CPI inflation pulled the rate down by about 0.5 percentage points in May, this was less pronounced than the month before when the prices had a negative effect of 0.7 percentage points.

In May Retail Prices Index (RPI) inflation, a separate measure which includes housing costs, was 1%, up from 0.9% in April.

Bank of England governor Mark Carney has said he expects inflation to remain low in the short term.

The Bank expects near-zero inflation to help the UK economy by boosting the spending power of households.

Chancellor George Osborne said “a powerful mix of low prices and rising wages” was “good news for working people and family budgets”.

Nevertheless, he said: “Of course the job is not done and we will continue to remain vigilant to all risks, particularly when the global economic situation is so uncertain.”

Wise money markets look to central banks for future direction

After the positive US Confidence figures to start last week US Dollar suffered as the week came to a close, so did the Dollar rally and strength that was sustained for the past 3 weeks.
Wise money markets look to central banks for future direction
With mixed messages coming from America, the USD suffered as investors continue to look for further hints at reductions in the Fed’s current cycle of monetary stimulus, as stock markets start to suffer.

This morning, April Chinese Manufacturing PMI was revised downwards, in further signs that momentum in the Republic is continuing to falter as domestic demand is flagging.

Also, this morning weaker then consensus retails sales data from Australia is continuing to weigh on the currency ahead of tomorrow’s interest rate decision.

In the UK there is a quiet week data wise to follow with Manufacturing PMI this morning expected to show slight growth at 50.2 and Services PMI on Wednesday showing growth at 53.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take the reins in July.

This is unlikely to be much of an event this month with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Over the channel after the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Manufacturing PMI data today and Services on Wednesday are expected to come in line with releases late last month to show a brighter picture in the Eurozone but that the area is still struggling to find growth in the sectors.