Financial market research and analysis

The US dollar started the week better bid, paring losses on the back of Clinton’s investigation. The US equity futures recovered in Asia: Dow Jones (+0.17%), S&P 500 (+0.19%) and Nasdaq (+0.39%).

The rising political risks in the run up to the November 8^th presidential election weighed on US sovereign yields. US treasuries fell the most in 20 years. The 10-year paper yielded 1.8522% in Asia.

The Federal Reserve (Fed) is expected to sit on its hands at the November 1^st/2^nd monetary policy meeting, yet the accompanying statement will be in focus as traders will be seeking, and analysing any piece of detail the FOMC minutes will reveal vis-à-vis the FOMC’s policy path on November 23rd. As of today, the market assesses a 69% probability for a December interest rate hike in the US.

UK heating up…

Rumours that Bank of England (BoE) Governor Mark Carney may quit in 2018 hit the headlines over the weekend. The Financial Times report, citing that ‘Carney is ready to serve a full eight-year term, despite critics campaigning for him to resign ahead of time’, somewhat eased tensions regarding the BoE, nevertheless couldn’t bring appetite back into the pound, nor the Gilt market.

The UK’s Gilt market has been the worst performing sovereign market over the last three months. The UK’s decision to leave the European Union caused an environment of high political uncertainty, sending the UK 10-year yield from 0.518% in August to 1.26% in October. Although the knee-jerk economic impacts have been softer than many anticipated, with better-than-expected PMI prints and a stronger-than-estimated GDP report following the Brexit vote, the ambiguous business environment warns that activity in the UK may experience worse times in quarters ahead.

Standard & Poor's kept its negative outlook on Britain's AA sovereign credit rating, citing ‘the ongoing uncertainty about the country's future outside the EU, after downgrading it in the wake of June's referendum.’

Markets are now focused on the Super Thursday. At the BoE’s August meeting, the MPC had voted to introduce a package of monetary measures to support the economy following the UK’s decision to leave the European Union. The measures included a 25 basis points interest rate cut, £10 billion worth of non-financial investment-grade corporate bonds purchases, as well as a £60 billion worth increase in UK’s government bond purchases. The BoE’s unorthodox monetary policy, combined with a significant depreciation in the pound revived inflation in the UK, and may have tempered the contraction in the growth figures. Nevertheless, some sectors are severely suffocating; the UK’s real estate and financial sectors have been among the most hit.

This Thursday, the BoE is expected to maintain the status quo amid the rising inflationary pressures. The quarterly Inflation Report (QIR) will reveal the MPC’s most recent economic forecasts and should guide investors regarding the future of the BoE’s monetary path.