SUPER THURSDAY for the pound and UK markets in general. Not only do we get the MPC interest rate decision (0.50% unchanged) at 12.00 but we also get bombarded with the minutes from the meeting, the rate decision vote, the economic forecasts and finally the inflation report.
Suffice to say the first thing markets will digest is the rate decision and vote. Then power words will be looked for in the inflation report and economic forecasts….suffice to say you can expect wild gyrations and certain volatility to follow the 12.00 bell. As we mentioned a couple days ago, we think the voting will change from 9-0 at the last meeting to 8-1 (martin Weale likely to vote for a hike). While this is nothing extraordinary given recent comments by Gov. Carney re hike rates in early 2016, it is nevertheless the beginning of a change of hands when it comes to voting for a rate hike that is significant. We are still over 6 months away from this but markets will be looking to see if there is any change to the wording of the minutes that signal a hike could come EARLIER or LATER. After the minor rally in the USD yesterday we have opened up above 1.56 handle again. No doubt this matters none once the announcement is made at 12.00. As we wrote yesterday, with the likelihood of a US rate hike in September, any disappointing news from the BoE (no vote change or change in the minutes/inflation report) will be pounced on and lead to a weakening of the GBP vs the USD and EUR. On the other hand a vote of 8-1 or 7-2 will keep the GBP above 1.5600 until economists have digested the reports to see if there is a any change on the likely hike….it’s all to play for.
Very interesting article in Bloomberg (http://www.bloombergview.com/articles/2015-08-04/how-spain-fixed-its-economy) which strangely was followed up by the Guardian newspaper (http://www.theguardian.com/business/2015/aug/05/spain-eurozone-big-four-growth-markit-greek-debt-crisis) regarding Spain and how they have weathered the storm and come out (last month) as the strongest of the big 4 European countries. What this article shows and what we have written about many times (regarding Greece) is that IT IS POSSIBLE to come out the financial crisis without putting the EU/EUR and global markets on a lifeline. Austerity and good luck WORKS. Had Greece followed Spain 6-7 years ago we probably would not be writing about Greece and Tsipras would be a figment of your imagination. Without wanting to repeat what was written in these 2 articles (and confirmed what we have written previously) I think it sums up the disparity between those that want to help themselves and those that want handouts. I recently visited Spain and truly the change in sentiment is extraordinary. People are feeling confident that they have turned the corner and facing a bright future.
EM currencies facing a warpath…with the ZAR, MXN and NGN being devalued after the markets sold the local currency. The ZAR is within touching distance of GBP 20.00 – it sounds too crazy to even think about. Only a few years ago the ZAR was SUB 10 vs the GBP. With precious metals under pressure and the ZAR a commodity based currency it is really not surprising to see the ZAR weaken to such an extent.
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