BoE Backed Into A Corner
The long-awaited November policy decision for the BoE has finally arrived, and money markets have been sticking to their overly aggressive bets for higher rates running into the meeting.
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Quarterly SONIA futures show markets pricing in over 1.0% of tightening for the BoE by the end of next year, and that is already accounting for the possible 15 basis point hike either in November or December this year.
The hawkish bets have been spurred on by hawkish rhetoric from some BoE members, by higher-than-expected inflation numbers and of course rising energy costs in the UK. We think money markets are way too aggressive in their expectations.
It seems bond markets would agree with that view as we’ve recently seen some curve inversion as the front-end moves outpaces the long end, pointing to a market that thinks more hikes are coming on the one hand but also thinks it will potentially lead to demand destruction on the other.
This week’s meeting will mark a very important opportunity for the Bank of England to either push back sharply against the rise in rate bets, or to confirm the market’s fears that the bank will tighten policy too much too fast and potentially reverse some of it’s post-covid economic rebound.
As always, we have more on this and how we look to potentially take advantage of it in our week ahead video.
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If you find these weekly analysis and trade ideas useful, you’ll love Financial Source. There’s a link below where you can learn more about it.
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
Quarterly SONIA futures show markets pricing in over 1.0% of tightening for the BoE by the end of next year, and that is already accounting for the possible 15 basis point hike either in November or December this year.
The hawkish bets have been spurred on by hawkish rhetoric from some BoE members, by higher-than-expected inflation numbers and of course rising energy costs in the UK. We think money markets are way too aggressive in their expectations.
It seems bond markets would agree with that view as we’ve recently seen some curve inversion as the front-end moves outpaces the long end, pointing to a market that thinks more hikes are coming on the one hand but also thinks it will potentially lead to demand destruction on the other.
This week’s meeting will mark a very important opportunity for the Bank of England to either push back sharply against the rise in rate bets, or to confirm the market’s fears that the bank will tighten policy too much too fast and potentially reverse some of it’s post-covid economic rebound.
As always, we have more on this and how we look to potentially take advantage of it in our week ahead video.
-----
If you find these weekly analysis and trade ideas useful, you’ll love Financial Source. There’s a link below where you can learn more about it.
https://financialsource.co
