Carney comes out all guns blazing. Hmmm…
The Bank of England (BoE) cut interest rates to 0.25% yesterday, a record low and the first cut since 2009. Although the rate cut was unsurprising to markets, the further monetary easing, which included a £100bn scheme to force banks to pass on the low interest rate to households and businesses, created a shock for Sterling.
Mark Carney also stated that the BoE will buy £60bn of UK government bonds and £10bn of corporate bonds. Although the vote was 9-0 in favour of interest rate cuts, the further quantitative easing only passed with a 6-3 vote.
Following these decisions, the bank only expects slight GDP growth in the second half of 2016, but the 2017 forecast was cut sharply to 0.8% from 2.3%. There is also a chance of a further interest rate cut if the BoE deem it necessary. This news caused a significant Sterling selloff. GBPUSD fell to 1.3108, down over 2 cents within two hours, whilst the Pound lost 1.45% against the Euro. The single currency ended the day at around 1.1781, and there is no key Eurozone data due until next Tuesday.
Today, UK house price data will be released from the Halifax HPI. This may not have a significant impact on the market following yesterday’s news, however the data will be an indicator of the housing industry’s health post-Brexit.
The Dollar was guided by events in the UK yesterday, trading sideways against the Euro. The latest US jobless claims data was slightly worse than expected with an increase to 269,000, the highest level since late June. However, the decline in factory orders was not as significant as expected at 1.5%. This meant that the US data had little effect on the Dollar, and showed some hints of stabilisation in business spending.
Today’s highlight will be US Nonfarm payrolls data, which has been volatile over the past two months, with a shock May result of 38k after a forecast of 161k. In stark contrast, June’s Nonfarm payroll data outperformed forecasts last month adding 287k jobs, significantly above the expected 179k. Analysts have suggested that a strike by Verizon employees from May to June is largely to blame for the distortion of the figures. ADP employment figures released on Wednesday showed that 179k jobs were added for July and this figure has raised expectations of a positive Nonfarm payroll figure today. Expectations of a Fed September rate hike has been somewhat subdued, however a very strong employment report could rekindle speculation.
Data to Watch: 8:30am GBP Halifax House Prices MoM. 9am EUR Italian Industrial Production MoM. 1:30pm USD Non-Farm Employment Change, USD Employment report, USD Trade Balance. 8pm USD Consumer Credit MoM.