Tag Archives: Hikes

No UK rate hikes this year and room for further Euro upside

The odds of a 25bp Bank of England rate hike at next week’s policy meeting are all but dead in my view following tepid GDP growth of 0.3% qoq in Q2 2017.

Moreover, UK GDP growth and inflation dynamics, allied to forthcoming changes in the composition of the Monetary Policy Council, point to the record-low policy rate of 0.25% remaining on hold for the remainder of the year.

Forecasting European Central Bank (ECB) monetary policy, including the timing and modalities of changes to its Quantitative Easing program, is arguably a far trickier proposition.

While the ECB may be incentivised to slow the current rapid pace of Euro appreciation, at this stage I do not expect the ECB to try and to stop, let alone reverse, the Euro’s upward path.
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Fed on the ropes but not down

The US Federal Reserve and markets have been engaged in a bruising duel for the past six months. Round 6 should have been an easy one for the Fed given reasonably well behaved equity and FX markets, surging energy prices and signs that global GDP growth was stabilising.

But softer US employment data for May have put the Fed on the ropes, with markets having now all but priced out a hike next week and only pricing in a 24% probability of a hike on 27th July.

The Fed is not down, however, thanks to decent earnings, income and spending, a pick-up in most inflation measures in April and a robust housing market, which all point to a rebound in GDP growth in Q2.

In the labour market, an increasingly high percentage of those who want a job are finding one and the steady share of full-time employees points to decent hourly earnings growth in months ahead. There is still slack but arguably less than in December when the Fed hiked.

The Fed will be hoping that the next data set, particularly for the labour market, manufacturing and inflation, will go its way so that it can finally deliver a second-hike in a decade at its July meeting.

This is still my core scenario, although if labour data for June disappoint the Fed may well turn to its 21st September meeting as its next possible trigger point.

A July or September hike would leave the Fed with another few rounds to hike its policy rate by another 25bps, in line with Fed members’ current average forecast of two hikes in 2016. The Fed will want to show markets that it will not be swayed by soft data punches or temporary market developments and is still in control, but without flooring markets. Read more

Fed: This is what it sounds like when doves cry

Too many dark spots for a March hike…

The Federal Reserve is unlikely to hike its policy rate from 0.25-0.50% at its 16th March 2016 meeting and may have little choice but to revise down its expectations to around 3 hikes for 2016 in its accompanying projections. In the 16th December “dot-chart”, the median expectation among the 10 voting Federal Open Market Committee (FOMC) members and 7 non-voting members was for four hikes this year (the weighted average was for a slightly less hawkish 91bp of hikes). Read more