EUR 8.84 For Business Accounts Only

The Morning Track new-driver

- The Morning Track – New Driver? by Bob Savage
http://track.com/articles/the-morning-track-new-driver/

If markets are like children, then they need a story before bed and that narrative drives the price action for the next day. The story yesterday was about the FOMC delivering a dovish hike. The mission was accomplished but as the price action shows there were cracks thanks to the weaker retail sales and CPI in the US making the reality of the world different than the Yellen fairy tale about normalization. The next driver appears to be the dream reaction to the FOMC – namely flatter rate curves. Today we got the SNB and BOE versions of the story. The SNB did much the same – stoically remain with negative rates but perhaps more realistically lowering CPI forecasts. The BOE did nothing - but the surprise was the 3 MPC voters for a hike – and that suggests trouble as the Brexit clouds post the UK election make life even more uncertain. The key point is in their guidance as the market has flipped from seeing the BOE raising rates to lowering them in the next year and
after today back again – with 40% chance for Mar 2018 from 0.15% yesterday - all despite the weak retail sales today. GBP weakness drives CPI but not growth. Of course, this evening the Mansion House speech from Chancellor Hammond will seek to make it all clear, with keen focus on the EIB and infrastructure loans and perhaps his different vision for Brexit. For Indonesia, the central bank there also left it on hold at 4.75% - same level since October, with inflation expected to peak in June, and the key being stability in flows despite the FOMC hike. EM focus post the FOMC hike remains central to understanding what is different today along with the keen focus on GBP still as the election and Brexit clouds meet central bank logic.