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31 Jul 2015
BoE inflation report - TDS
FXStreet (Guatemala) - Analysts at TD Securities explained that the BoE August Inflation Report the is due on Thursday 6 August could be convoluted all around.
Key Quotes:
"First, the new release cycle for the BoE begins which will see the rate decision, minutes, and Inflation Report all released simultaneously, with the press conference to follow 45 minutes later. The risk here is whatever the overall initial burst of headlines from Minutes and the IR will be, we expect one dissent for a hike at this meeting. That suggests short of an exceeding dovish headline—which seems doubtful—the more likely first reaction is hawkish.
·Then the question is can Carney’s message deliver on the anticipation for hawkishness in the market? That is a bigger question mark for us. At the time of the November Inflation Report, we are tracking headline CPI to be 0.2-0.3%. Wage growth seems likely to be running 3-3.5%, but the optics of hiking with such low CPI would be a PR problem at the least. So we suspect Carney’s message will be (1) a hike in 2015 is possible but not likely, (2) a hike in early 2016 is reasonable, (3) while tightening will be slow and gradual, it may need to be slightly faster than the market is priced for in order to manage inflation risks for 2017/18, which would be seen increasingly on the upside. So we think Carney will be hawkish by steepening up the curve more than talking up a 2015 hike."
Key Quotes:
"First, the new release cycle for the BoE begins which will see the rate decision, minutes, and Inflation Report all released simultaneously, with the press conference to follow 45 minutes later. The risk here is whatever the overall initial burst of headlines from Minutes and the IR will be, we expect one dissent for a hike at this meeting. That suggests short of an exceeding dovish headline—which seems doubtful—the more likely first reaction is hawkish.
·Then the question is can Carney’s message deliver on the anticipation for hawkishness in the market? That is a bigger question mark for us. At the time of the November Inflation Report, we are tracking headline CPI to be 0.2-0.3%. Wage growth seems likely to be running 3-3.5%, but the optics of hiking with such low CPI would be a PR problem at the least. So we suspect Carney’s message will be (1) a hike in 2015 is possible but not likely, (2) a hike in early 2016 is reasonable, (3) while tightening will be slow and gradual, it may need to be slightly faster than the market is priced for in order to manage inflation risks for 2017/18, which would be seen increasingly on the upside. So we think Carney will be hawkish by steepening up the curve more than talking up a 2015 hike."