Good morning

Bank of England avoid repeat of Tuesday’s QE failure
After Tuesday’s quantitative easing operation from the Bank of England embarrassingly failed, investors closely watched yesterday’s BoE bond purchases to see if the market would test the Bank further. Fortunately for Mark Carney and his board, Wednesday’s operation was oversubscribed and the Bank bought £1.17 billion worth of 7-15 year gilts smoothly.
A repeat performance would have heightened speculation that the Bank would have to alter the pattern of bond buying and UK yields rose modestly, helping to keep sterling above 1.30 against the US dollar.
In a statement yesterday morning, the Bank put Tuesday’s failure down to poor market liquidity and low volumes due to summer doldrums. As such, the Bank are confident that they’ll be able to pick up the shortfall later on in their easing program. Nonetheless, it is certainly troubling for Carney that their six month plan stuttered on just day two.
Tuesday’s BoE drama proves that the UK government can afford to spend more
As pension funds and insurance firms are unwilling to let go of their longer-dated bonds (these are preferred over cash in order to cover long-term pension and claims liabilities decades in advance) and interest rates have plummeted to record lows, this is a screaming opportunity for the UK chancellor to turn on the fiscal taps and flog longer-maturity bonds in the billions to boost infrastructure spending when Parliament resumes in a few weeks’ time.
Kiwi dollar targets yearly highs as RBNZ rate cut doesn’t go far enough
As mentioned in yesterday’s briefing, NZD markets had accepted that the Reserve Bank of New Zealand needed to cut rates in order to lift inflation away from its measly annual rate of 0.4%. Nonetheless, the RBNZ cut by the bare minimum: just 25bps despite the market pricing in a 25% chance of a 50bps reduction. NZD rallied in response, rising toward the year’s highs just above 0.73. Despite the short-term pain in the FX markets, the RBNZ’s move today has kept some of their gunpowder dry, giving the Bank the room to ease further down the line if the persistent strength of the NZD becomes intolerable.
US data takes the focus today, with weekly jobless claims and import/export price inflation due at 1330BST. But with markets this thin, it’s unlikely they’ll prove to be very influential.
Have a great day.