Last week was filled with the culmination of many issues as we had the FED, ECB, trade agreement, UK election, impeachment hearings, and even an attempt at resolving the USMCA trade deal with Mexico and Canada.
Posts Tagged ‘Mark Carney’
Notes From Underground: The Market Has Much to Consider
December 16, 2019Notes From Underground: A Hard Brexit Is Going To Fall?
February 10, 2019The economic fallout from a “hard” Brexit has been debated in the media for the last few months. When I say “hard Brexit,” I mean that the U.K. leaves the European Union without any deal about trade rules, movement of people or any other binding treaty rules concerning the contemporary EU/U.K. relationship. I have refrained from forecasting outcomes because they are beyond the scope of economic analysis since it requires using models built of questionable assumptions. The British have a long history of economic intercourse intertwined with the lines of commerce from its empire.
Notes From Underground: Quick Note on the BOE and Friday’s Jobs Report
November 2, 2017Today, the BOE raised interest rates (as expected). But the market deemed it to be dovish and the EUR/GBP rallied 2 percent as the British pound tumbled and the euro strengthened versus the pound and dollar. On Wednesday I cautioned that the EUR/GBP failed to hold below its 200-day moving average and this provided a good technical level. As expected, the FOOTSIE index rallied more than 1 percent as investors appreciated a weaker POUND as beneficial to British corporations regardless of Brexit. The initial release of the statement revealed a 7-2 vote, which on first read was not the expected 6-3 vote so could have been a bit hawkish. But the eight paragraph statement clarified the soft-side of Governor Carney:
Notes From Underground: The More Things Stay the Same, the More the Headlines Change
September 14, 2017The BOE held true to consensus and kept rates unchanged and maintained its balance sheet at 435 billion pounds, with the votes were exactly the same as the August meeting. The POUND fell on the initial headlines but the algos reversed as it was reported that there MAY be a need to raise rates due to the lessening slack in the economy. Governor Carney is reading from the Mario Draghi book, “Rules For Central Bankers.” He cited Brexit as the cause of a supply shortage because of reduced investment into the U.K. Wow! This is nonsense as stagnant wages are limiting domestic demand but Carney insists the negative fallout is constraining supply. With interest rates at record lows British firms could borrow all the cash they need to finance expansion. Carney needs BREXIT as the cover for his massive error. Remember when he panicked and cut rates following the BREXIT vote?
Notes From Underground: The Bank of England Reveals Its Decision
September 13, 2017Thursday, the Bank of England will reveal its most recent interest rate decision. The consensus is for the BOE to leave its overnight interest rate at 0.25%. There is interest in this meeting because the British inflation data has risen and is now above Governor Mark Carney’s desired target. The most recent inflation data released on Tuesday sent GILT yields higher and put a strong bid to the British pound, pushing it to levels against the U.S. dollar unseen since the BREXIT vote. The EURO even lost ground to the British currency as the market NOW ASSUMES that the BOE will have to move to raise rates in response to rising price pressures.
Notes From Underground: “Acting Early to Reduce Uncertainty”
August 10, 2016Last Thursday, Bank of England Governor Mark Carney rationalized the Monetary Policy Committee’s aggressive liquidity addition by citing the desire to head off any risk to economic growth and thus increase in unemployment. Rather than wanting to let the markets digest the impact of the Brexit vote, the BOE moved to “reduce uncertainty.” No matter that the British pound had depreciated by 13%, that the Footsie 100 had rallied more than 10% and bond yields actually dropped to record lows.
Notes From Underground: Governor Carney Reveals the Full Monty
August 4, 2016
(Click on the image to watch me and Rick discuss why a dart board makes a better forecaster than central bankers.)
This is a brief note attached to a spot I did today with CNBC’s Rick Santelli where we discussed the Bank of England’s decision in full. To my great surprise Mark Carney delivered monetary policy on three fronts: 1. Cut the benchmark rate; 2. Began a new round of QE with purchases of 60 billion pounds of Treasury debt with a 10 billion corporate bond buy kicker; and 3. An enhanced Facility Lending Scheme now labeled as Long-Term Funding Scheme (TFS), which is an imitation of the ECB’s TLTRO, which is meant to get the banks lending the additional BOE-provided liquidity. The British domestic banks will incur penalties if they fail to pass the cheap credit into the financial system. My view still stands. The POWER OF THE TFS IS AMPLE STIMULUS AND THE CARNEY-LED MPC SHOULD HAVE HELD THE RATE CUT AND QE IN RESERVE.
The British Pound dropped 1.5% in response to the aggressive BOE action, the Footsie equity index was up almost 2% and the British gilts rallied as the yields on the long-end of the curve dropped 16 basis points. Carney followed his central bankers down the rabbit hole of “got to do something” for there is a supply shock. My criticism is that the BOE governor acted too quickly and should have let markets continued to seek out the real effects of the Brexit vote. Why are central bankers so terrified of the signals that markets provide about the economy? I will focus on the British pound and the GILTS as a weighing mechanism of market sentiment as we move forward. There is still much to digest concerning Brexit and Prime Minister May has shown herself to be flexible in confronting the EU.
***Tomorrow’s unemployment data is expected to reveal nonfarm payrolls of around 175,000 with a 0.2% increase in average hourly earnings and a jobless rate of 4.8%. Be patient as revisions to last month’s large increase may impact any strong number. If the number is above 280,000 there will be talk of September’s FOMC meeting being in play for a rate rise but after today’s BOE action the FED will be cautious because if Carney fears a large negative impact or supply shock from Brexit Janet Yellen will be loath to raise rates in the face of global headwinds.
Patience is advised in response to a summer market having to decode a great deal of economic nuance. But the most interesting asset class tomorrow will be the U.S. bonds and its reaction to very strong data. Today the U.S. Treasuries rallied strongly on the BOE action, confirming again that global bond markets are all connected by relative value trades. A large nonfarm payroll will test the durability of relative value and most certainly lead to a flattening of the yield curves.
Notes From Underground: The Low Yield of Well-Heeled Boys (Trafficking In Central Bank Counterfactuals)
August 3, 2016Tomorrow the key economic release will be the Bank of England’s interest rate decision. The market is 98% certain there will be at least a 25 basis point rate cut to 0.25%. A majority of analysts also believe that the BOE will increase its asset purchases (QE) from its long, stable level of 375 billion pounds. I DON’T THINK THE BOE IS GOING TO BE AGGRESSIVE AND WILL WAIT TO SEE FURTHER EVIDENCE OF ECONOMIC DATA TO CONFIRM A SOFTENING IN ACTIVITY IS UNDERWAY. A rate cut will accomplish NOTHING except a slight drop in the currency. The recent economic data has been soft but after all the vituperative speech and dire predictions after the vote to LEAVE the European Union, the economy was expected to pause until the market could sort out the hyperbole of negativity.
Notes From Underground: Things That Need To Be Watched
July 14, 2016As I ponder things in the 118 degree heat, it is time for some reflection and perspective:
a. The Bank of England performed beautifully today and took a breath before cutting rates further and/or increasing the BOE’s balance sheet. Now that Prime Minister MAY‘s cabinet is devoid of the idiot George Osborne, it behooved BOE Governor Carney to wait and see if fiscal policy would be the stimulative tool of choice and preserve the monetary policy for future use. I had advised my employers that Carney would be reticent to act because he is a cautious man and his recent plunge into the political realm in cahoots with George Osborne had sullied his reputation. It seems that Carney wants to remove himself from center stage and allow the new cabinet to have a say in just how to provide any stimulus in response to the dire forecasts from the BREXIT outcome.
Notes From Underground: When I Have Something to Say Sir, I’M GOING TO SAY IT NOW (Phil Ochs)
February 3, 2016The markets are in turmoil and it gets the mind to thinking: What could possibly have caused today’s reversal in the stock market and the long end of the BOND MARKET? The market seemed like it was on the edge of a complete risk capitulation. The dollar was dropping, bonds all over the world were in rally mode and the precious metals were finally finding some technical strength as the GOLD (in pure dollar terms) had finally rallied through its 200-day moving average. Even the SILVER was able to synchronize with the GOLD and break out of three months of resistance. (The silver 200-day is at 15.13, still a bit above its closing price.) The global stock markets were cascading lower as the Nikkei and German DAX took out their lows made the night of the BOJ’s surprise move to a three-tiered negative interest rate policy.