Is the Bank of England ready for a hawkish tilt? Focus on the results of the stress tests of US banks
It turned out to be a rather disappointing session for markets in Europe yesterday, retreating for the first time this week
US markets also had a lackluster session, although the Nasdaq and Russell 2000 ended the day higher.
The market crises of the past few days still seem to temper the upside and introduce an element of caution, as investors start to look towards the end of the quarter, as investors begin to look more at the employment outlook, as well as the ‘inflation. .
Today’s European open is shaping up to be an equally cautious affair, with today’s focus on the latest weekly jobless claims data and the latest Bank of England decision.
In light of recent events and the slight shift in the Federal Reserve’s stance on the timing of a possible rate hike, today’s Bank of England meeting could potentially mark a similar schedule shift in this regard. which concerns the withdrawal of its own emergency monetary policy. measures.
At the last MPC meeting in May, the mood was significantly more optimistic than at the start of the year, with the bank increasing its annual GDP forecast for the UK economy from 5% to 7.5%. Since then, the data has improved further with yesterday’s flash PMI figures showing higher orders, as well as rising input prices expected to push inflationary pressures even more than they already are.
The bank also took the decision to announce that it was reducing the amount of bonds it was buying each week to £ 3.4 billion.
Gov. Andrew Bailey insisted it was an operational move and designed to give the bank more flexibility, not less asset purchases, but it’s hard to describe it any other way. If he walks like a duck and quacks like a duck, he’s a duck, and it would be hard to imagine the Bank of England taking such action if the economy were in trouble, rather than on the verge of to start a growth spurt.
Recent economic data has reinforced this optimistic outlook, and while there is some disappointment over extending some restrictions through July, this only pushes back any resulting economic rebound in July and August, assuming that ‘there is no virus variant flip side.
On the unemployment front, the bank also revised its estimates downwards, although it acknowledged that the headline rate still has room to rise as holiday measures are relaxed. Furthermore, this is also Andy Haldane’s last meeting as Chief Economist and he might do well given his recently expressed concerns that the UK economy is likely in need of a bit of a brake in case she makes a career off the road. In May, he was the only one to vote to reduce the scale of the ongoing asset purchase program to £ 100bn from £ 150bn, and he is likely to do the same, or even d ” be more aggressive in calling others to follow the same path.
His comments that the recovery is becoming “gangbustered” saw markets begin to factor in the prospect of a rate hike in 2023, a not unreasonable stance given that rates are still well below the levels that they are. they were at the start of 2020. Haldane’s departure along with the appointment of former Citigroup chief economist Catherine Mann to replace Gertjan Vlieghe in September is expected to introduce an interesting new dynamic in the Bank’s policy making. England over the next few months, with the potential, if data continues to improve at its current rate, that the Bank of England may have to start cutting seriously before the Federal Reserve does.
In the United States, the latest weekly jobless claims are expected to fall below the 400,000 level after an unexpected jump to 412,000 last week.
U.S. banks are also expected to be the center of attention as the Federal Reserve releases the results of its latest round of stress tests on the U.S. banking system.
Last year, the central bank halted all bank buybacks and dividends to ensure that the U.S. banking system had enough to deal with the economic fallout from various lockdowns and restrictions placed on the U.S. economy. At the start of this year, this rule was changed so that banks that passed the various stress test scenarios could resume this process on a limited basis.
All US banks that pass these latest tests will see all these restrictions lifted as of June 30.e. JPMorgan Chase has already started down this path when at the end of its first quarter it announced it would relaunch its own $ 30 billion buyback program. As the second quarter banking results season is expected to kick off in the coming weeks, all eyes will be on U.S. banks passing this week’s stress tests and those looking to resume shareholder payments on a higher basis. generous.
Before we get too excited, it should be noted that JPMorgan has warned that its revenue and revenue for the second quarter may well be lower than the levels seen in the first quarter due to the decline in revenue from its business division. and declining credit card balances. CEO Jamie Dimon also warned that the bank was looking to increase its cash levels amid concerns over higher inflation. It could also limit the scope of returns to shareholders over the medium term.
EURUSD – continues to consolidate above the 1.1850 area, but needs to come back above the 200 day MA to start higher. Monday’s key day reversal needs to see the 1.2000 area for the bullish momentum to be sustained. Below 1.1840 suggests movement towards the 1.1704 level.
GBPUSD – was unable to cross the 1.4000 zone yesterday after the rebound from Monday’s lows. A break above 1.4020 opens the 1.4080 area as well as 1.4130. A break below 1.3780 suggests the potential for a return to 1.3670.
EURGBP – still looking weak with potential to move towards the 0.8480 area. We have resistance to recent day highs at 0.8600.
USDJPY – continued to climb with the prospect of a move towards the 111.70 area on a break above 111.00. A move below the trendline support now at 109.90 opens a return to the 108.60 area on a break below 109.20.