Vive la Revolution
2017 is a critical year for European politics not to mention the triggering of Article 50 and Trump.
And so ‘Super Thursday’ is finally upon us. If one defines ‘Super’ by a measure of bulk, it really is ‘Super’, given the quantity of information due.
|09:00||EZ ECB Publishes Economic Bulletin|
|12:00||UK BoE Rate Decision, BoE Inflation report|
|12:30||UK Carney Press Conference|
|13:30||US Initial Jobless Claims, Continuing Claims|
And so ‘Super Thursday’ is finally upon us. If one defines ‘Super’ by a measure of bulk, it really is ‘Super’, given the quantity of information due. At midday the BoE will publish its latest monetary policy decision, the minutes to the meeting, its Inflation Report, an explanatory letter to the Chancellor regarding the recent overshoot of the Bank’s 2% inflation target in excess of 1% and the annual ‘stock take’ on spare capacity. Our view is in line with the market is that the policy decision should be relatively straightforward with a unanimous 9-0 vote to hold the Bank rate held at 0.5% and keep the level of QE purchases steady. Following the raft of releases, Governor Mark Carney is expected to deliver his press conference at 12.30pm.
The crucial issue for this ‘Super Thursday’ is what guidance the BoE gives on the likely path for UK interest rates going forward. In November, the Bank appeared broadly content with the market path for interest rates outlined in that report, namely around two hikes over 2018 and 2019. One question for today is whether the BoE wishes to signal a slightly more aggressive pace of rate rises, perhaps signalling the possibility of three rate rises over this time. The market is currently pricing in a 45% chance of a 25bp move in May so the report will certainly make interesting reading.
Turning back to Brexit, the latest developments are that the PM could be set to appease the hard Brexiteers in the Tory camp with plans for an instant break from key EU regulations after Brexit. Regulations seen to hinder the financial services industry could be included as well as quitting the EU’s customs regime to allow the UK to strike new free-trade agreements. Such a move could ease the pressure from within the party and keep the PM’s job safe… for now.
Over in the US, Senate leaders reached a bi-partisan deal to fund the government for two years yesterday, fuelling hopes that a second government shutdown this year will be avoided when Congress votes on the bill tonight. The bill would also suspend the debt ceiling until 1 March next year. However passage is not guaranteed, especially through the House where the bill could be opposed by Republican fiscal conservatives (the bill adds close to $300bn to spending in 2019); and by Democrats who are seeking assurances from senior House Republicans for protection for young undocumented immigrants who are at risk of deportation (so-called dreamers).
Today marks day minus-one of the Winter Olympics (yes, due to the sheer size of the programme competitive action actually takes place before the official start to the games) and marks the first time that mixed events will feature at the tournament outside of the traditional figure skating and luge team competitions. Mixed curling - featuring one woman and one man per team – kicks things off with the sport hoping the new event will reignite the #LoveCurling craze that went viral four years ago. Spare a thought though for those who don’t qualify for a place in the final (on day one) as they will be eliminated more than 24 hours before the opening ceremony has even taken place. The other main event happening today is ‘Super Thursday’ as the BoE rate decision, MPC minutes and Inflation Report are all announced. As with the Winter Olympics, market action will often take place before the event, so to make sure you qualify get in touch early with your Investec Dealer who can talk you through the potential scenarios.
Yesterday morning the UK released their second estimate Q4 GDP figures. They were revised down to +0.4% from +0.5%, whilst the broad consensus and our own economist forecast had been for it to be unchanged at 0.5%.
Given that an employment data-led shift in interest rate expectations was the trigger for the ‘correction’ in equity markets earlier in the month, it is logical to have reasoned that a strong CPI print for the states on Wednesday last week, and its ultimate implications in the mind of FOMC members, may have sparked a second wave lower.
Brent recovered sharply last week, particularly after the weekly US inventory numbers revealed a lower than expected increase in US crude inventories of only 1.8m barrels of crude and 3.6m barrels of gasoline while at Cushing, the delivery point for US crude futures, there was a fall inventories of 3.6m barrels.
The independent International Energy Agency has just released its latest monthly report last week, which covers the month of December 17.
Zinc has continued to set successive highs and this morning reached 3,481 $/MT, a new fresh 10 year high. A weaker USD across the board has been the driver for strength across the complex.