Inflation

[irie]

I'm betting on there being a large interest rate cut much sooner than expected, July/August perhaps. Good luck for those in NS&I such as Potter, be interesting to see whose guess comes out best. (IMO) Bailey doesn't know his arse from his elbow, events will overtake him PDQ.

[Count Steer]

I wouldn't be surprised if there is a 'larger than expected' cut soon but it depends on how much leverage the government actually have on the BoE. There's an election coming up. If it happens it will be tempered by a desire to keep the savers happy too.

Bailey was the wrong man for the job. I don't think he'll last long - if he's got any sense of self awareness. (I don't imagine he'll actually get sacked).

[Count Steer]

Short-ish summary of what's happening in the housing market. Prices flat/falling, buy-to-letters dropping out, new build rates etc etc.

https://theconversation.com/falling-hou ... %20renters

[gremlin]

Here is my thinking, the whole market is offering products that rely on the rates staying high for at least another year, so if there is a “big” drop in August then they’re all going to lose big, and I’d be surprised to see the BoE sitting back and watching all the banks raise the rates on fixed products and then dropping a bomb on them in August.

Any product offering has to be adequately funded in terms of both liquidity and capital. Not necessarily individual products, but aggregated certainly. This needs to be evidenced in both the ILAAP and ICAAP documents presented to the PRA annually and reviewed as required. Therefore, any current offerings are sufficiently funded in terms of both. In short: the bank's ain't gonna lose. They've been playing this game for some time.

The economists have looked into the tea leaves and currently the smart (!?) money is on a 25 pip cut in June, another one Sept/Oct dependent upon data. The BoE have maintained that they plough their own furrow and don't follow the Fed, but when the silverback starts banging his chest, it doesn't take long for the other gorillas to join in.

[gremlin]

If it's of interest to anyone, market Wrap from this morning. Don't be getting excited about insider trading. It's on the website. :

Headlines in the last 24 hours have been about the UK economy as the hotly anticipated Bank of England Monetary Policy Committee decision announcement came at noon. Deputy Governor for Markets and Banking, Dave Ramsden, sprang something of a surprise by joining dove Swati Dinghra in voting to cut the base rate. This effectively means only three out of the remaining seven members need to make a dovish pivot for the base rate to be cut. Governor Bailey’s comments in the following press conference further opened the door to a June rate cut, with him saying it “is neither ruled out nor a fait accompli”. Overnight Index Swap rate pricing suggests traders see nearly a 60% chance of a cut but key to it all will be the next two inflation readings at 7am on 22 May and more importantly on 19 June, the day before the next decision announcement.

50bps of cuts are expected by markets across the next four meetings to November, seemingly at alternate meetings in either June and September, or August and November. Some proponents of June -September cuts may argue the bank doesn’t want to be seen cutting going into a general election; whilst backers of August – November cuts dare not question the Bank of England’s independence and also note that these meetings, like yesterday’s, are accompanied by new inflation forecasts and press conferences giving a better chance for Monetary Policy Committee members to explain their thinking. Chancellor Jeremy Hunt said yesterday when asked if he hoped the Bank of England cuts rates before the general election, that he “would much rather wait until they’re absolutely certain inflation is on a downward trajectory” and “what we want is sustainably low interest rates”.

This morning we have had UK GDP figures for Q1 released and these were much better than expected, showing the economy expanded by 0.6% in the quarter, meaning the UK is no longer in recession. There were contributions to the growth from housing, utilities, recreation, restaurants, and household goods and services. Handelsbanken’s UK Chief Economist James Sproule wrote in a note after the release that the broad basing of this growth points to an ongoing revival of consumer confidence and suggests that this trend can be expected to run for several quarters.

Elsewhere, equities rallied in the US yesterday after weaker than expected employment data boosted the case for earlier rate cuts. Asian shares were higher overnight as are European shares, with US futures pointing to a further 0.2% increase in the main indices this afternoon. In currencies the pound whipsawed down and up only by around 0.3% against the euro yesterday lunchtime, before getting a 20 pip lift on the GDP release this morning, only to give half of that gain back shortly after. GBP/USD is back in the low 1.25s on the back of a weaker dollar, and for all the excitement of the last 24 hours, GBP/EUR has actually traded in a narrow range of less than 40 pips, with a low 1.16 handle. It seems this author will have to see how Brighton and Hove Albion do away against Newcastle United for a similar experience of potential fireworks which then duly fizzle away into nothing much at all.

[gremlin]

For a more nuanced view of what's happening in finance:

[Mr. Dazzle]

Kudos for "whipsawed"

[gremlin]

The banks are punting out products at 5%+, and fully funded or not they're certainly not going to be tickled pink if the BoE drops a large cut on them at the August MPC.

They'll be fully hedged. If your offering a product at rate X, hedge it with IRS or some for barrier product. Your funding costs are factored into the overall product cost.

BoE is certainly not going to drop rates by 50bp in one clip. You can see from the Market Wrap the number of members who voted for a cut of 25bp could fit in a phone box.

[Mr. Dazzle]

You can see from the Market Wrap the number of members who voted for a cut of 25bp could fit in a phone box.

Lots of good restaurants for powerfully built director types in London though....

[MyLittleStudPony]

I think my one year bonds finish in July so fingers crossed for no big drop before then. I suspect I'll still be able to get over 5% on new one year bonds. They were over 6 last year.

I think crypto is done for at least a year, probably longer.

[JackyJoll]

I think crypto is done for at least a year, probably longer.

Are you guessing, like everyone else appears to be?

[MyLittleStudPony]

I think crypto is done for at least a year, probably longer.

Are you guessing, like everyone else appears to be?

No. I have definite answers for all of this. I know exactly where crypto and interest rates will end up. And everything else! That's why I said "I think"!

[JackyJoll]

I think crypto is done for at least a year, probably longer.

Are you guessing, like everyone else appears to be?

No. I have definite answers for all of this. I know exactly where crypto and interest rates will end up. And everything else! That's why I said "I think"!

Then you’re having some very profitable thoughts. I’m in!

[irie]

"As markets are now pricing in a delayed and slower Fed rate cut path due to sticky US inflation and a more hawkish Fed tone, we continue to deploy cash in bonds by locking in the current attractive yields from major government bonds and investment grade credit amid geopolitical uncertainties."

HSBC would say that, wouldn't they?

[Cousin Jack]

Basically, I don't think a big drop is coming and I don't think most financial institutions do either, I bet they haven't bet on it, IYSWIM.

On the subject of possible rate cuts, I received this from my bank...
(it references the US rates and it's advice specific to bonds, but it's fundamentally interest rate information)

"As markets are now pricing in a delayed and slower Fed rate cut path due to sticky US inflation and a more hawkish Fed tone, we continue to deploy cash in bonds by locking in the current attractive yields from major government bonds and investment grade credit amid geopolitical uncertainties."

Interest rates, and therefore bond rates, are likely to stay higher for longer, as I said they would, which suits me just fine.
My worry is that the UK MPC may have another very typical episode of not understanding what is happening and they vote to drop the rate, way before it's time. I'd like to think not, surely they've learned by now, but who knows.

It is a Committee. Dont expect too much - a camel is a horse designed by a Committee.

[Horse]

Dont expect too much - a camel is a horse designed by a Committee.

If you had to choose either a horse or camel to survive longest in a desert, which would you choose?

[Cousin Jack]

Dont expect too much - a camel is a horse designed by a Committee.

If you had to choose either a horse or camel to survive longest in a desert, which would you choose?

OTOH which would win the Grand National?

[weeksy]

Dont expect too much - a camel is a horse designed by a Committee.

If you had to choose either a horse or camel to survive longest in a desert, which would you choose?

OTOH which would win the Grand National?

How many camels have tried ? They may be awesome at it.

[Mr. Dazzle]

Are camels more or less delicious than horses? That probably comes into a survival equation.

[Cousin Jack]

If you had to choose either a horse or camel to survive longest in a desert, which would you choose?

OTOH which would win the Grand National?

How many camels have tried ? They may be awesome at it.

They might. Your chance to win the Grand National? I will even put 50p E/W on you, if you do win it will be at about 1000 to 1.