Rate day today and the first of 2014 from the BOE and ECB. 12.00 gmt for the Old lady and 12.45 gmt for the ECB.
We’ll get no changes from the BOE but some market participants are saying there is an increased chance of an accompanying statement. I think that chance is very very slim given next month is the quarterly inflation report where Carney can set the world to rights as much as he likes.
One thing I have noted is that there’s been a marked move from expectations of both a rate cut and a hike in the first half of the year.
Here’s the numbers I posted on the 6th Jan;
BOE OIS interest rates 06 01 2014
And here’s yesterdays numbers;
BOE OIS interest rates 08 01 2014
You’ll note there’s been an increase in expectations of a cut from Feb to May and a marked increase of a rise from April to June.
The move to cuts are on the back of the weak inflation picture developing in Europe, and to a lesser extent in the US. I tend to think that we won’t see the levels of falls that they have and the BOE will probably pop a couple of bottles of Babycham if inflation finally hits their 2% target after four years of waiting.
The market may start to get over anxious if we do fall below the 2% mark but if the recovery continues then we should start to see some inflation pick up from wages. Going by the numbers above, the smart money is planning that we see lower inflation in the next few months which will reverse later in the year and that’s pretty much spot on.
Trading wise, it’s one to keep an eye on as if the market does think it may get a UK rate cut they could be very disappointed. Any falls in the pound over lower inflation would be a great buy to get into for a medium to long term trade.
So onto the ECB.
Again we’re unlikely to get any shocks and Draghi will no doubt mention the fall in bond yields and proclaim further success in the repair job currently ongoing. He’ll also repeat the mantra that we’ll be seeing a period of low inflation that is likely to pick up as the recovery does. He’ll say “Well anchored, within the price target”, blah blah blah etc etc. Draghi the dove is going to find it increasingly more difficult to be dovish if Europe starts improving, so if he does ‘big up’ Europe’s fortunes then we could see the euro have a little rally.
Asisde form that I think we’re in for a fairly quiet meeting on both counts. Let’s hope I’ve given it the kiss of death
