MARKET BRIEFING – LONDON OPEN 11.09.2015
As expected the Bank of England kept the UK’s Official Bank Rate unchanged at 0.5%. The vote to keep the benchmark rate unchanged although not unanimous obtained a large majority with only one of the 9 committee members wanting to see an increase.
The lone dissenter was once again Monetary Policy Committee Ian McCafferty. Mr. Mcafferty voted for an increase the last time the MPC debated the merits of hiking interest rates. As such Mr. Mcafferty has maintained his hawkish stance by citing that there is now a growing inflation risk and that increasing costs could lead to the CPI could overshooting its 2% target.
However, the most 0.25% increase that Mr. Mcafferty wanted was not forthcoming. The doves on the Monetary Policy Committee can point to the majority view being supported by recent comments made both the World Bank and International Monetary Fund (IMF) that increasing UK interest rates now would be premature and risky. That the MPC took the safe wait and see approach for now is understandable.
Furthermore with the FOMC over in the United States has yet to decide on increasing its own benchmark interest rate the Bank of England will almost certainly wait for their American colleagues to act first in normalizing their own interest rate environment.
There were a couple of key points that could be taken from yesterday’s announcement. Firstly the move to lower third quarter GDP from 0.7% to 0.6% would seem to indicate that the Bank of England and its Governor Mr. Mark Carney will have concerns that to increase rates now will only weaken the GDP picture. This is in line with the World Bank and IMF’s concerns.
The other key point was that of international cross-border contagion and more specifically the recent and dramatic Chinese economic meltdown and worries for the Emerging Markets have added risks to the UK economy, however, according to their MPC, the Bank of England August outlook has not been sufficiently altered by these events.
The MPC view would seem to have noted the global economic turmoil and will act and adjust their policy as and when it is required. The key risk event for the Emerging Markets and China would appear to be the economic fallout post a US interest rate hike. With the September FOMC meeting fast approaching the MPC will soon have additional hard data to analyze.
The inflation outlook continues to concern the Bank of England with the 2% inflation target remaining a fair distance away. Current CPI levels at present are flat lining close to zero and with commodity and oil price risk continuing to add downside pressure to prices. However, the Bank of England has an expectation that inflation will rise to around 1% in the first part of 2016.
Taking what we can from yesterday’s announcement it would appear that the MPC will definitely increase interest rates in the future but are not in any hurry to make their move this year. What we really need to see is a lift off in the United States with interest rates being increased there first and enough data in Q4 that supports a UK interest rate nominalization early in 2016.
EURUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.1405
Target 2: 1.1155
Projected range in ATR’s: 0.0126
Daily control level: 1.1170
GBPUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 1.5560
Target 2: 1.5330
Projected range in ATR’s: 0.0114
Daily control level: 1.5350
USDJPY
The intraday technical outlook
Trend 1 hour: Up
Target 1: 121.95
Target 2: 119.30
Projected range in ATR’s: 1.32
Daily control level: 120.00
USDCHF
The intraday technical outlook
Trend 1 hour: Up
Target 1: 0.9840
Target 2: 0.9620
Projected range in ATR’s: 0.0110
Daily control level: 0.9695
USDCAD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1.3375
Target 2: 1.3125
Projected range in ATR’s: 0.0127
Daily control level: 1.3310
AUDUSD
The intraday technical outlook
Trend 1 hour: Up
Target 1: 0.7105
Target 2: 0.6925
Projected range in ATR’s: 0.0091
Daily control level: 0.6945
GOLD
The intraday technical outlook
Trend 1 hour: Down
Target 1: 1121.15
Target 2: 1090.55
Projected range in ATR’s: 15.11
Daily control level: 1127.00
OIL
The intraday technical outlook
Trend 1 hour: Down
Target 1: 48.80
Target 2: 43.30
Projected range in ATR’s: 2.74
Daily control level: 46.75
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