Good morning,

Carney storm over…

As quick as the potential of a storm around the future leadership of the Bank of England blew up it has been calmed by Governor Mark Carney agreeing to a one year extension in the role, taking him to June 2019.

2019 could obviously be a very interesting year for the UK as any triggering of Article 50 that should take place next year will conclude its 2 year countdown to the UK’s exit from the Eurozone in 2019. Carney’s notice of an extension doesn’t back No.10 into a corner as such but does pin further market expectations on her invoking the Article in the first quarter of next year.

GBP ran a little higher on the announcement at 6pm but has lost a little of its lustre overnight as the focus switches back to any policy changes that may be forthcoming at this week’s ‘Super Thursday’ policy extravaganza.

…until Thursday

It is not just whether policy changes of course but what the voting records of the remaining MPC members are, and most importantly especially in today’s political climate, how the Bank’s forecasts have changed from August.

Carney said last week that the Bank of England ‘is not indifferent’ to the level of the pound and there is only so far that they can look through the increase in inflation; the level of pass through into inflation from a devalued pound will be front and centre as well as any economic forecasts pertaining to the invocation of Article 50; that two year timeline is now part of the policy horizon that the Bank of England must focus on.

We think that policy will stay as it is on Thursday although there is the real possibility that MPC members Vlieghe and Haldane may vote for a cut.

US Presidential Election – 7 days to go

With fresh allegations (her emails, his ties to Russia) landing seemingly every hour the last week of the election cycle is gearing up to be a mudslinging fight to end all others. Polls through yesterday night continued to show a 3/4 point lead for Clinton over Trump but more polling following Friday’s revelations needs to be done to bring about a more accurate picture.

Mexican peso rallied yesterday and the USD gave up a quick 0.3% on all its crosses yesterday although we believe this was more to do with portfolio managers rebalancing things at the end of a month’s trading than anything geared towards the election.

A recording of our webinar on the election and the likely currency and economic fall outs is still available to view here

Japan and Australia stand pat on policy

The Bank of Japan and the Reserve Bank of Australia both decided to sit on their hands overnight. The former while not shifting policy did decide to cut its inflation estimates with the BoJ now expecting core consumer inflation to come in at 1.5 per cent next year, down from previous thoughts of 1.7 per cent.

AUD has risen following the RBA’s assessment that growth and inflation will continue to head higher through 2017; a fairly overt hint that the bank is happy to sit there in a rather neutral position and wait on the data.

The Day Ahead

As it is the first of the month it is Manufacturing PMI day from the world economy. China’s and India’s numbers were both at 2 year highs overnight. With China’s release out of the way we focus on Europe and the US. Italy’s number is due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00 with the UK number due at 09.30.

Have a great day.

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