Today is what used to be called Super Thursday for the Bank of England. It was one of the “improvements” of the current Governor Mark Carney which have turned out to be anything but. However he is not finished yet.
Starting on 7 November, the Bank of England Inflation Report is to become the Monetary Policy Report. The Report is also to undergo some changes to its structure and content.
These changes are part of the Bank’s ongoing efforts to improve its communications and ensure that those outside the institution have the information they need in order to understand our policy decisions and to hold us to account.
Really why is this?
The very latest changes represent the next step in the evolution of our communications.
I suppose when you tell people you are going to raise interest-rates and then end up cutting them you communication does need to evolve!
Communication let me down,
And I’m left here
Communication let me down,
And I’m left here, I’m left here again! ( Spandau Ballet )
The London Whale
There was so news this morning to attract the attention of a hedge fund which holds some £435 billion of UK Gilt securities as well as a clear implication for its £10 billion of Corporate Bonds. From the Financial Times.
Pimco, one of the world’s largest bond investors, is giving UK government debt a wide berth, reflecting concerns that a post-election borrowing binge promised by all the major political parties could add to pressure on prices. Andrew Balls, Pimco’s chief investment officer for global fixed income, said the measly yields on offer from gilts already makes them one of Pimco’s “least favourite” markets. The prospect of increased sales of gilts to fund more government spending makes the current high prices even less attractive, he said, forecasting that the cost of UK government borrowing would rise.
Yes Andrew Balls is the brother of Ed and he went further.
“Gilt yields look too low in general. If you don’t need to own them it makes sense to be underweight,” he told the Financial Times.
Actually pretty much every bond market looks like that at the moment. Also as I pointed out only yesterday bond markets have retraced a bit recently.
The cost of financing UK government debt has been rising over the past month. The 10-year gilt yield has reached 0.76 per cent, from 0.42 per cent in early October. That remains unattractive compared with the 1.84 per cent yield available on the equivalent US government bond, according to Mr Balls,
Mind you there is a double-play here which goes as follows. If you were a large holder of Gilts you might be pleased that Pimco are bearish because before one of the biggest rallies of all time they told us this.
Bond king Bill Gross has highlighted the countries investors should be wary of in 2010, singling out the UK in particular as a ‘must avoid’, with its gilts resting ‘on a bed of nitroglycerine.’ ( CityWire in 2010 ).
Also there is the fact that the biggest driver of UK Gilt yields is the Bank of England itself with prospects of future buying eclipsing even the impact of its current large holding.
As the Bank of England under Mark Carney is the very model of a modern central banker a chill will have run down its spine this morning.
Average house prices continued to slow in October, with a modest rise of 0.9% over the past year. While
this is the lowest growth seen in 2019, it again extends the largely flat trend which has taken hold over
recent months ( Halifax)
Indeed I suggest that whoever has to tell Governor Carney this at the morning meeting has made sure his espresso is double-strength.
On a monthly basis, house prices fell by 0.1%
This is the new reformed Halifax price index as it was ploughing rather a lonely furrow before. We of course think that this is good news as it gives us another signal that wages are gaining ground relative to house prices whereas the Bank of England has a view similar to that of Donald Trump.
Stock Markets (all three) hit another ALL TIME & HISTORIC HIGH yesterday! You are sooo lucky to have me as your President (just kidding!). Spend your money well!
This is an awkward one for the Bank of England as we are on the road to a General Election and the economy is only growing slowly. Indeed according to the Markit PMI business survey may not be growing at all.
The October reading is historically consistent with GDP
declining at a quarterly rate of 0.1%, similar to the pace
of contraction in GDP signalled by the surveys in the third
Although even Markit have had to face up to the fact that they have been missing the target in recent times.
While official data may indicate more robust growth
in the third quarter, the PMI warns that some of this could
merely reflect a pay-back from a steeper decline than
signalled by the surveys in the second quarter, and that the
underlying business trend remains one of stagnation at
The actual data we have will be updated on Monday but for now we have this.
Rolling three-month growth was 0.3% in August 2019.
So we have some growth or did until August.
The international environment is far from inspiring as this just released by the European Commission highlights.
Euro area gross domestic product (GDP) is now forecast to expand by 1.1% in 2019 and by 1.2% in 2020 and 2021. Compared to the Summer 2019 Economic Forecast (published in July), the growth forecast has been downgraded by 0.1 percentage point in 2019 (from 1.2%) and 0.2 percentage points in 2020 (from 1.4%).
The idea that they can forecast to 0.1% is of course laughable so it is the direction of travel that is the main message here.
If we move on from the shuffling of deckchairs at the Bank of England we see that its Forward Guidance remains a mess. From the September Minutes.
In the event of greater clarity that the economy is on a path to a smooth Brexit, and assuming some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target.
Does anybody actually believe they will raise interest-rates? If we move to investors so from talk to action we see that in spite of the recent fall in the Gilt market the five-year yield is 0.53% so it continues to suggest a cut not a rise.
More specifically there was a road to a Bank of England rate cut today as this from the 28th of September from Michael Saunders highlights and the emphasis is minr.
In such a scenario – not a no-deal Brexit, but persistently high uncertainty – it probably will be
appropriate to maintain an expansionary monetary policy stance and perhaps to loosen further.
He was an and maybe the only advocate for higher interest-rates so now is a categorised as a flip-flopper. But it suggested a turn in the view of the Bank in general such that this was suggested yesterday by @CNBCJou.
Looking forward to the BOE tomorrow where the new MONETARY POLICY REPORT will be presented (not to be confused with the now defunct INFLATION REPORT). A giant leap for central banking. * pro tip: watch out for dovish dissenters (Saunders, Vlieghe?) $GBP
The election is of course what has stymied the road to a return to the emergency Bank Rate of 0.5% as we wait to see how the Bank of England twists and turns today. Dire Straits anyone
I’m a twisting fool
Just twisting, yeah, twisting
Twisting by the pool
The Investing Channel