HALISTER1: BOE CHECKLIST: What to Look for in Rate Decision, Minutes

BOE CHECKLIST: What to Look for in Rate Decision, Minutes

(Bloomberg) -- The BOE will simultaneously publish its rate decision and minutes at noon London time.
  • Bloomberg’s live blog will start then too
  • NOTE: For analyst views, see the research roundup
  • Key questions include:
DID THE MPC CUT RATES? ANY CLUE ON NEXT STEPS?
  • In August, policy makers said they would likely support a further rate reduction this year
  • All economists in a Bloomberg survey see key rate held at 0.25% today as a number of analysts have pushed back their expectation for another cut to November
    • Sixteen of 22 economists in a separate Bloomberg survey predict the MPC will though say another cut this year is still on the cards
    • Carney has expressed caution about lowering rates given the likely impact on bank margins and there’s a global discussion about what easing measures central banks should prioritize in the future
WHAT ABOUT QE, OTHER MEASURES?
  • BOE Chief Economist Andy Haldane told The Telegraph newspaper he sees a bigger role for tools other than rates
  • Kristin Forbes voted against both corporate and government bond purchases in August; Ian McCafferty and Martin Weale voted against buying sovereign bonds
  • Forbes told MPs this month she is “far away” from supporting helicopter money, while Jon Cunliffe said such an option is “outside” his thinking
  • Michael Saunders joins the committee, replacing Weale, and his thoughts will be weighed to see if the balance on the MPC has shifted more hawkish or more dovish
HOW SPLIT WERE THE VOTES?
  • Most analysts expect the decision to keep policy on hold this month will be unanimous, although Barclays economists say dovish Committee member Gertjan Vlieghe is likely to vote for a cut
WHAT DOES THE BANK SAY ABOUT STERLING?
  • GBP remains around the middle of its post-Brexit trading range vs dollar this week, less than 1% lower than on the eve of the bank’s August meeting but ~11% below its YTD peak
  • In August, the minutes show rate-setters expected the fall in sterling to lead to a fairly rapid pickup in CPI inflation, spurring it to around the BOE’s 2% target in 1H 2017
  • August data showed inflation unchanged at 0.6% y/y, even as it showed a surge in PPI input prices; today’s commentary will be scoured for any changes to the outlook amid falling certainty the bank will ease further
THE ECONOMY
  • While economists slashed their forecasts after the U.K.’s decision to leave the EU, the data so far has come in better than the more gloomy forecasts
    • A number of analysts have changed their forecasts again since and no longer expect a recession in the U.K.
    • Governor Carney told MPs this month growth is around half as much as it was prior to the referendum as he explained why the bank’s August easing package was justified
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Andrew Haldane (Bank of England/London)

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HALISTER1: Aberdeen AM Looks to Add to Europe Duration as Rates May Rally

Aberdeen AM Looks to Add to Europe Duration as Rates May Rally

(Bloomberg) -- Portfolio manager Patrick O’Donnell says he remains overweight on European duration and is looking to add risk as the recent market volatility is akin to past episodes when investors questioned policy accommodation.
  • Expects global rates to rally; will continue to keep flattener trades on until there is a higher probability of real fiscal action globally
  • Uncertainty around BOJ’s apparent re-appraisal of its monetary policy is deterring investors from buying into market selloff
    • One way Japan’s central bank seems to want to steepen the yield curve is by cutting rates further into negative territory
  • Once the BOJ’s policy assessment is known, people will want to look for a positive nominal yield; that will support the JGB curve, which in time should be supportive for other markets
  • For now, JGB yields have become relatively attractive again; therefore, domestic investors’ capital flow from Japan has slowed; should resume; those investors have been buying Europe duration and expect that to proceed
  • In the euro zone, it looks like the ECB is having its own comprehensive assessment, which heightens the probability of the next PSPP evolution being a shift in the capital key; expects to see periphery start to attract attention as we get closer to the central bank’s December meeting
  • While the political situation is fluid, we have learned that the ECB tends to trump these events and expect that to be the case again, at least for the time being
  • Don’t see risk of any aggressive fiscal policy in the region until the next recession as this isn’t a policy lever than can be pulled easily in Europe; Japanese fiscal efforts have under-delivered
  • Logistically, such measures are more likely in the US under a Trump presidency than with Clinton so may see risk assets weaken and support for rates if Trump were to move significantly ahead in the polls
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
8301 JP (Bank of Japan)
2539Z GR (European Central Bank)

People
Patrick O'Donnell (Aberdeen Asset Management PLC)

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HALISTER1: U.K. Aug. Retail Sales Ex-Fuel Due in 5 Mins; Est. M/m -0.7%

U.K. Aug. Retail Sales Ex-Fuel Due in 5 Mins; Est. M/m -0.7%

(Bloomberg) -- U.K. Aug. retail sales ex-auto fuel m/m est. -0.7% vs prev 1.5%.
  • U.K. Aug. retail sales ex-auto fuel y/y est. 4.8% vs prev 5.4%
  • U.K. Aug. retail sales incl-auto fuel m/m est. -0.4% vs prev 1.4%
  • U.K. Aug. retail sales incl-auto fuel y/y est. 5.4% vs prev 5.9%
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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HALISTER1: 10Y Gilt Target Raised to 1.35% as Easing Impact Priced In: HSBC

10Y Gilt Target Raised to 1.35% as Easing Impact Priced In: HSBC

(Bloomberg) -- After overshooting to the downside, gilt yields are now headed higher; revise end of year target for 10Y to 1.35% from 1%, writes HSBC strategist Bert Lourenco in a client note.
  • Gilts have performed strongly this year (at one point delivering 17% returns), now turned decidedly bearish
  • Now that BOE has eased policy on all fronts (rates, liquidity. asset purchases), believe yields should start to rise as a reflection of the response and fall out to these events
  • Although BOE purchases exceed net issuance, it will not have the same forceful impact as that seen on the Bund market
    • Easing which further boosts inflation expectations should warrant higher 10Y yields as BOE does not control long-end rates which embed various premia
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Bert Lourenco (HSBC Securities Inc)

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HALISTER1: EUR Credit Spreads Wider But Not at Entry Level Yet: Commerzbank

EUR Credit Spreads Wider But Not at Entry Level Yet: Commerzbank

(Bloomberg) -- Buoyant new issue supply and a focus on global monetary policy currently drives sentiment in credit markets, but better entry levels may lie ahead, Commerzbank analysts including Bernhard Grünäugl write in client note.
  • In particular, higher-beta segments from corporate hybrids to HY and banks’ AT1 are widening on the back of rising risk aversion ahead of crucial headline events
    • These themes are likely to remain; would wait for better entry levels before adding risk in these segments
  • With the next reporting season and the associated blackout periods still some weeks away, a substantially more severe dent in risk sentiment might be needed to cool down primary mkt activity; but in the absence of hawkish surprises from major central banks, this remains unlikely for now
    • Recent M&A activity has added the potential for blockbuster deals to an already impressive pipeline
  • Senior credit curves should maintain a steepening bias; shy away from increasing spread duration too aggressively
  • Says investors willing to re-engage the market at already slightly more attractive yield levels should do so via the lower-rated part of the CSPP ‘buying candidates’ spectrum; steady ECB buying should temper volatility and any potential fallout from rising risk aversion
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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HALISTER1: Philippine Peso Drop Looks Excessive, Sell THB/PHP Forwards: ANZ

Philippine Peso Drop Looks Excessive, Sell THB/PHP Forwards: ANZ

(Bloomberg) -- Slide in Philippine peso over the past week looks excessive, Khoon Goh, head of Asia Research at ANZ, writes in note today.
  • Remittances and growth in business process outsourcing industry provide ongoing support for peso
    • Doesn’t expect divergence between USD/PHP and rest of USD/Asia to persist for too long
  • Recommends selling 3-mo. THB/PHP via forwards/NDF at 1.3828, targeting 1.3300 with stop-loss at 1.4050
  • Meanwhile, expects further weakness in Asian currencies
    • Strong inflows and yield-chasing behavior in the last few months appear to be driven more by expectations of large liquidity boosts by major central banks
    • With the market now questioning wisdom of this, bond yields have risen, leading to wobbles in equity markets
    • In turn, this is leading to increased volatility and Asian currency weakness
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Khoon Goh (Australia & New Zealand Banking Group Ltd)

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HALISTER1: AUCTION PREVIEW: 15y Spain Offers Value, 5y Looks Rich

AUCTION PREVIEW: 15y Spain Offers Value, 5y Looks Rich

(Bloomberg) -- Spain to sell 0.75% 07/2021, 1.30% 10/2026 and 1.95% 07/2030 for EU3-EU4b at 10:30am CET.
  • Analysts highlight 15Y as offering value on the curve, while 5y looks rich; usual tightness in repo, performance on curve bodes well for auction
  • Santander (Edgar da Silva)
    • If top-end of range sold, Tesoro will have placed 80% of issuance target this year, compares with 73% on average at this stage over past five years, 1 percentage point more than at this point last year
    • Auction offers good opportunity to switch into the 07/2030 SPGB and out of the expensive 01/2029 SPGB in RV terms
    • 10Y looks attractive in RV too, sits ~1bp cheaper than fair value on fitted curve
    • 07/2021 SPGB does not offer attractive RV pick-up in that part of the curve
  • ING (Benjamin Schroeder, Martin Van Vliet)
    • SPGBs have not fully recovered from spread widening seen going into the first supply after summer break, though has outperformed BTP peers
    • Of the bonds on offer, 15y has seen some cheapening on the curve, with 10s15s steepening back to pre-Brexit levels
  • Mizuho (Peter Chatwell, Antoine Bouvet)
    • 07/2021 has a history of being special on repo and has performed well on the curve, suggests the auction will be supported
    • Despite recent reopenings, 10Y Spain is expensive on 5s10s compared to BTPs
    • Choice to tap 15y SPGB was a surprise, as believe Tesoro will want to launch a new benchmark in this sector in the coming weeks
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Bouvet (Mizuho Financial Group Inc)
Benjamin Schroeder (ING Groep NV)
Edgar Da Silva Figueira (Banco Santander SA)
Martin Van Vliet (ING Groep NV)
Peter Chatwell (Mizuho Financial Group Inc)

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UUID: 7947283