Halister News

(Bloomberg) -- The BOE will publish its rate decision, Quarterly Inflation Report and minutes at 12pm in London. Governor Mark Carney will hold a press conference 30 minutes later.

• To follow Bloomberg’s live blog, click here
• NOTE: For analyst views, see the research roundup
• Key questions include:

DID THE MPC CUT RATES? BY HOW MUCH?

• All but 2 of 52 economists polled by Bloomberg expect the BOE to cut rates today; median est. is for 25bps cut, while 3 see deeper reductions

WHAT ABOUT QE?

• The median forecast is for the MPC to keep the asset purchase facility unchanged at GBP375 for now but there’s a wide spread of views, with the highest estimate at GBP525b
  • Goldman Sachs says as much as half of the GBP100b of extra QE it expects could come from private-sector assets, mostly corporate bonds, while BofAML expects GBP50b of QE split evenly between gilts and corporate bonds
• Market response will depend on any changes to buckets, a shift to a longer program and whether linkers are included as some say is possible
• In corporates, could see some U.K. underperformance if no program is launched today but is unlikely to turn moderate weakness more severe, Commerzbank says

AND THE FLS?

• The scheme is currently scheduled to end in January 2018 but many economists expect it to be extended as it has deemed to be largely successful so far, especially as the alternative of lower rates would squeeze margins more
• It’s also possible the terms of the scheme could be altered to make it more attractive

ANYTHING ELSE?

• M&G macro investment manager Eric Lonergan says we’re entering a pivotal juncture for policy with investors looking for a new approach; today will be a key test of whether Carney is on board or remains wedded to more conventional measures
• Options could include tiered rates or helicopter money agreed with the Treasury to fund infrastructure spending

HOW SPLIT WERE THE VOTES?

• Following a sharp contraction in PMI data after the U.K. voted to leave the EU, Martin Weale did an about turn and called for immediate stimulus; Kristin Forbes had said she wanted to see hard data, so is seen as a possible dissenter
• Nomura’s Jordan Rochester says if the Bank cuts by 25bps and the vote is unanimous, the market may see a significant chance of another cut in November, while a 5-4 split would suggest a longer wait

THE MIX OF ANY FUTURE EASING?

• Whatever the MPC announces today, Carney’s press conference will be scoured for further clues on how the U.K.’s rate- setters see the relative usefulness of its policy options
• Particular attention will be paid to any discussion on the new lower bound for rates or whether the Bank has strongly held views on how negative rates would impact the country’s banks
• Any signal that new rate is the new floor could see 10Y gilt yields rise to 0.90%, TD Secs analysts say

ANY UPDATE ON BREXIT VIEWS?

• Ahead of the referendum, Carney said Brexit could possibly lead to a technical recession, drawing criticism from politicians for scare-mongering
• At the July meeting, he said there were preliminary signs the result has affected sentiment in households and firms and there

are signs some businesses are beginning to delay investment

• Today’s GDP forecasts are widely expected to show a slower pace of growth; the extent of any forecast cuts will be used to judge how much more easing the Bank may eventually do

WHAT DOES THE BANK SAY ABOUT STERLING AND INFLATION?

• GBP is now down 9% since the June 23 vote on a TWI basis
• Ahead of the referendum, the bank said roughly half of GBP’s fall since Nov. 2015 might reflect the referendum effect; in July, Carney said the fall could help the U.K’s economic adjustment
• While inflation will probably be revised higher, y/y CPI peaked above 5% in 2011 and the Bank left policy unchanged; any update on current thinking is expected to suggest that would be the case again

(Bloomberg) -- France to sell 0.5% 05/2026, 5.75% 10/2032, 4.75% 04/2035 for EU5b-EU6b at 10:50am CET, as well as OAT I/L 2027, 2029 bonds for EU500m-EU750m at 11:50am CET.

• ECB QE demand in longer bonds may result in dealer-led auction, analysts say

• Mizuho (Peter Chatwell)
  • 10Y benchmark is cheapest bond on fitted curve; offers value here, particularly as yield approaches the “psychologically attractive” 0.20% level
  • Longer bonds are high-coupon bonds; expect they have been well-bid by PSPP during the bull-flattening of OAT curve over past few months
  • Expect dealers to be restocking inventory at auction, with a view to place into PSPP rather than end investors

• Barclays (Huw Worthington)
  • 10Y to be last tap, with new 10Y expected in September; issue has cheapened 0.5bp on the roll, now 2bps cheap in ASW vs old benchmark, marginally rich vs recent discounts
  • Cross-market, 10Y OAT reached YTD tights vs Germany at ~27.5bps at the end of last week; has since seen ~1.5bps of re-widening into supply
  • Off-the-run 10/2032 has underperformed ~1bp vs peers over past month, though still trades rich on the curve; specific dealer demand should be the main source of demand in the auction

• Commerzbank (David Schnautz)
  • All bonds should enjoy strong demand, expect this to be final auction for the 10y benchmark; longer bonds have not been reopened since August 2015 and Dec. 2015, respectively
  • ECB QE is likely to have left its mark on the “free float” of these bonds
  • Tiny size of linker supply at EU500m-EU750m, “very old and very small” OATi 07/2029 should pose no problems

(Bloomberg) -- Spain to sell 0.75% 07/2021, 6% 01/2029 for EU2b-3b and 0.55% I/L 11/2019 for EU250m-750m at 10:30am CET.

• Despite lack of concession, both conventional bonds trade special in repo, which along with small sizes, should prove supportive

• Barclays (Huw Worthington)
  • 5Y has richened just under 1.5bps vs peers in past week, sits close to richest levels seen since issued in March
  • On-the-run 01/2029 has cheapened on the curve since auction announcement by ~1bp; concession came from 12- month rich levels for the bond, now trades around fair value
  • Cross market, both conventional issues have been strong performers recently, have not experienced any cross- market concession, trade around YTD tights vs both Germany and Italy

• Mizuho (Peter Chatwell)
  • The 5Y has managed to perform on the curve into this supply, trades special in repo, suggests demand will be solid here to cover shorts
  • 01/2029 is also special in repo, does not offer anything obvious in RV, expect auction to go without a hitch, but don’t look for strong results

• Commerzbank (David Schnautz)
  • Smooth auctions expected due to supportive cash flow environment with ~EU57b of coupons and redemption due this week, benign supply outlook
  • Auction is the lowest target range since mid-May, look for overall allocation slightly in upper end of the range
  • Regarding I/L bond, small size, lack of any other EGB linker supply is supportive

• Danske Bank (Anders Moller Lumholtz)
  • SPGBs have shown very strong performance recently vs both core and peers such as Italy; 10Y yield spread vs Italy at tightest levels since March 2015
  • General election outcome, cancellation of August auction, cancellation of European Commission fines, and Italian banking concerns have fueled Spanish outperformance
    • At current levels, Spain looks rich relative to Italy

(Bloomberg) -- An acceleration in Philippines’ July inflation may trigger a fall in USD/PHP to 100-DMA support, Bloomberg strategist Andrew Robinson writes.

• Consumer prices probably rose 2.1% y/y following 1.9% gain in June, median est. in Bloomberg survey shows; ests. range from 1.9% to 2.2%; data due 9am local time tomorrow
  • If data match forecasts, it would be first time in 15 months it is within the central bank’s 2%-4% target range
• Outlook for domestic inflation remains well-anchored, and domestic demand continues to be solid, BSP Governor Tetangco said on July 28; no need to change monetary policy stance
• July inflation probably rose 1.9% in July, unchanged from July, govt economist said on July 31
• USD/PHP little changed at 47.005 today; 100-DMA is at 46.632, pair has not traded below this MA since June 24
  • Slow stochastics and Williams %R are both falling
• NOTE: Andrew Robinson is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice