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  • richard evans

BoE on course to raise rates next month

Good morning

Feds Bowman has said that higher inflation is likely to last longer than the Fed thought a months ago. This didn’t stop US equities pushing higher, nor did it stop US dollar continuing to weaken yesterday although some of that move has been reversed since. Bowman did add that US employment will struggle to return to pre-pandemic levels. US 10 year yields continue to rise, now at 1.65% having been down below 1.3% one month ago. Tapering is likely to begin next month and end in mid-2022, this seems pretty much priced in, the question is how soon after that may we see rate rises. Fed still say they are a long way off but if inflation stays strong or even moves higher, I’d imagine rate rise expectations will be brought forward.

UK inflation was out this morning and it came out just slightly softer than expected, with a YOY reading of 3.1% vs 3.2% expected. GBP has actually fallen since the release, GBPUSD had been just above 1.3800 but is now 1.3780 now, having managed to get up to 1.3830 yesterday. Markets continue to price in a 0.15% rate rise in November, and look for rates to reach 1.25% by end of 2022. UK business leaders have said they think supply chain issues could remain in place until at least 2023, with demand staying strong but companies struggling to fulfil orders.

The Brazil central bank have intervened in the FX markets in an attempt to stem BRL weakness which has seen USDBRL move from 5.15 last month to 5.61 yesterday before the central bank stepped in, taking USDBRL down to 5.57. The pair is now 5.5850. The action may have prevented further rises in USDBRL for now but worth remembering it has been as high as 5.88 earlier this year so authorities may have a bit of a job on their hands to stop further BRL declines. Brazil interest rates are up at 6.25% after a 1% rise in each of past two months.

EU inflation out later this morning although there seems to be more interest in Canada data out this afternoon, possibly because of expectations we will see rises from YoY numbers. USDCAD currently 1.2345, remember this was up at almost 1.2900 one month ago.

I mentioned Covid yesterday, expressing some surprise that news wasn’t making as many headlines as I’d expect. I see this morning NHS bosses are urging a return of some Covid restrictions in the face of rising infections, they would like to see mandatory face coverings in crowded and enclosed areas. For now, the government don’t agree. Meanwhile Russia is seeing a surge in infections and over 60’s in Moscow who are not vaccinated have been ordered to stay at home for four months.

Finally, I am looking with interest at the government plans to offer subsidies of up to £5,000 for homeowners to switch from gas boilers to heat pumps. My heating bills are pretty horrific so I’m always looking at different technology. However I think I’m right in thinking that a heat pump works off electricity so it is not free to run or operate, therefore perhaps difficult to work out what savings could be made. The brief research I have done so far suggests it only works on extremely well-insulated houses which I would struggle to achieve. Any readers who have experience of such systems, do let me know.

- 10.00 EU CPI

- 13.30 BoC CPI

- 18.00 Feds Quarles speaks

- 19.00 Fed Beige book

- 01.30 AUS NAB business confidence

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