BOE to weigh in
It’s Bank of England Thursday and although this month’s meeting doesn’t deserve the ‘Super’ moniker – February sees the next Quarterly Inflation Report – that doesn’t mean today’s meeting is merely a placeholder. As we now get the minutes of the meeting at the same time as the decision – instead of waiting a fortnight for them – we are instantly able to drill drown into the reasoning of the MPC members for their decisions.
Last month’s meeting was typical in that the voting record was 8-1 in favour of a hold of policy, with lone hawk – Ian McCafferty – plumping for a 25bps hike. The focus of the discussion within the meeting was about inflation and the ability for the UK economy to generate price gains towards the 2% target through 2016.
Since then oil markets have slumped – crude oil traded below $30 a barrel for the first time in 12 years overnight – global growth has slowed, equity markets have dipped and fears, rightly or wrongly, of a recession have increased.
So what does this mean for the Bank of England’s outlook?
This time last year, following a slump in oil prices, Ian McCafferty decided to stop voting for a rate increase having done so since the autumn. This is probably the key development in today’s meeting. McCafferty has shown that he is willing to change his mind when the data changes – something of which there is a woeful lack of in central banking – and a unanimous vote for a hold at 0.5% will solidify pound at these low levels.
We do expect the MPC to comment on the weakness seen in the pound since the last meeting and the slight inflation impulse it may provide – GBP is 5% weaker on a trade weighted basis than it was at the beginning of December – but there is little chance that it makes up for the disinflationary push of oil and other energy markets.
We doubt that policymakers will raise the prospect of additional policy stimulus – rate cuts or renewed quantitative easing spending; any hints in that direction would cause sterling to tumble even further as traders kick the idea of a Bank of England rate hike into the long grass.
The meeting and minutes are released at noon.
Asia deals with bombs and jobs
The Asian session has been dominated by a bomb and gun attack in Jakarta, although better than expected Australian unemployment numbers and a CNY fix from the People’s Bank of China that strengthened the yuan have combined to calm markets. Today’s unemployment data may be enough to persuade the Reserve Bank of Australia to hold off on additional policy loosening. Help may come from the Chinese authorities in the not too distant future.
Draghi back in the limelight
We will also receive the minutes from December’s European Central Bank meeting today; will they show that Draghi was muzzled by more conservative members of the Executive Council or that the markets simply got way ahead of themselves in expecting additional stimulus? A break higher in EURUSD would push it close to the levels reached in the hours after Draghi disappointed us all a month ago.