The BoE meets on policy for the third time

September 15, 2016

European Outlook: Asian stock markets are mostly down, with Japanese equities remaining under pressure amid a stronger Yen and concerns that a BoJ move further into negative territory would hit earnings. Uncertainty about the global interest rate outlook and volatility in energy prices continue to weigh on investor sentiment. Oil prices are off lows and up from yesterday but the front end Nymex future is still firmly below USD 44 per barrel. U.S. stock futures are moving higher, but U.K. futures are in the red ahead of today’s BoE meeting. The central bank is widely expected to keep policy on hold, but markets will be sensitive to any comments that could signal that the BoE is backing off from the prospect of yet another cut this year. The SNB is also seen on hold as the central bank continues to rely on forex intervention rather than further easing to keep the currency under control, while eying developments in the Eurozone carefully. The economic calendar has U.K. retail sales, as well as the final reading for Eurozone August HICP inflation and EMU trade data.

New Zealand & Australia mixed news:ВВ Australia’s August employment data unveiled a big miss to the downside with a fall of 3,900 jobs (seasonally adjusted) against expectations of a rise of 15,000.The breakup of the data was slightly more encouraging at the margins, with the Australian Bureau of Statistics (ABS) saying that full-time jobs rose 11,500 while part-time jobs fell 15,400.Showing the difficulty in reading the data the unemployment rate dipped to 5.6% from 5.7% previously. That’s a result of the fall in participation rate, the number of people who say they are in the workforce, from 64.9% to 64.7%.ВВ  Meanwhile, New Zealand Q2 GDP rose 0.9% q/q and Q1 was revised up to 0.9% q/q from 0.7%. USDAUD remains well belowВВ 0.7500ВВ at 0.7470 and USDNZD belowВВ 0.7300ВВ at 0.7268.

A Global Advisor previewВВ of the Fed and BoJ next week reportedly suggests that there has been little in the U.S. data of late to alter the bias toward a December Fed rate hike. The BoJ is seen targeting lowering 3-5 year rates and reshaping the QQN purchase plan to afford more flexibility in asset purchases, while likely holding off on another rate cut. Meanwhile, equities are renewing gains and yields are rolling lower as some recent volatility in the asset markets cools off.

Main Macro Events TodayВВ ВВ ВВ ВВ ВВ ВВ ВВ ВВ 

BOE Rate Announcement –ВВ The BoE meets on policy for the third time since the vote to leave the EU in late June. Our view matches the strong consensus for a no-change announcement, which would leave the repo rate at 0.25%, adjacent to continuing QE operations that were detailed as part of August’s big policy announcement. Market participants will be eager for details of a reduction in the corporate bond buying programme that Governor Carney announced, off the cuff, during a parliamentary testimony last week.

ВВ US Retail Sales –ВВ August retail sales data is out today and should reveal a flat headline with ex-autos up 0.3% on the month. This follows July data which had the headline unchanged as well and the ex-autos component down 0.3%. Apart from the risks posed by the decline in vehicle sales, we also saw continued tepid growth for chain stores and gasoline prices are seen down for August

SNB Rate Decision ВВ –ВВ With the ECB on hold and reluctant to add more stimulus, which has underpinned the EUR, and with Swiss growth having surprised on the upside, the central bank is widely expected to keep policy on hold. Officials will keep the door to another rate cut open while they monitor Eurozone growth indicators, which have taken a downturn in August. However, with pension funds and insurance companies already feeling the strain from the negative interest rate environment, and ECB growth forecasts remaining largely unchanged, the SNB will want to keep its powder dry for now and continue to rely on direct intervention to keep the currency under control.

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