Summary:
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BoE rate decision 12PM; Carney press conference 12:30
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GBPUSD pulls back after Powell; GBPCAD breaking higher?
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FTSE under pressure going into the event
Today is Super Thursday with the Bank of England set to announce its latest policy decision alongside the quarterly inflation report at Midday (12PM BST) before Governor Carney conducts a press conference 30 minutes later in what could be a major mover for both the pound and UK stocks. Here’s a preview of what could be expected to happen from a selection of major banks:
ING
“With the Bank of England set to keep rates on hold on Thursday, all the action will be in its statement and we think there are three things to watch.”
“First, wage growth. Skill shortages in certain parts of the economy have seen pay rise at the fastest rates since the crisis. While some momentum has dissipated in the most recent figures, we don’t expect the Bank to significantly change its view that wage growth will keep performing strongly. This means the Bank will likely keep the door ajar to further rate hikes, so the second thing to watch will be the vote count – some headlines have hinted that one or two policymakers may be prepared to vote for an immediate hike at this meeting.”
“But for the committee as a whole, the Brexit delay is likely to reaffirm the concerns expressed in the substantial growth forecast downgrade policymakers made back in February. Investment looks set to stay under pressure, and we suspect this will stop the Bank from hiking rates in 2019.”
Danske Bank
“With continued Brexit uncertainty and weak economic data out of both the UK and Europe, we do not think the Bank of England will change its policy at the upcoming meeting.”
“It is one of the big meetings, so focus is on the inflation report and press conference. We do not expect a rate hike in the foreseeable future.”
Nordea Markets
“We and the consensus expects the BoE to keep its policy rate on hold. There is, however, a risk of Saunders opting to vote for a hike.”
“Still, the primary focus will be on the inflation report where the bank will likely revise upwards both its inflation and GDP forecasts due to respectively higher oil prices and various indicators pointing to 0.3-0.4 q/q growth in Q1 instead of 0.2% as indicated in the February inflation report.”
Westpac
“Since the BoE's last update, economic activity has been a little firmer than expected. However, Brexit-related uncertainty - which has been a significant drag on investment spending and economic growth - has continued unabated.”
“At the same time, inflation remains well contained. Against this backdrop, there's no chance of a change in the Bank Rate this month, and the BoE will once again emphasise the conditionality of its forecasts.”
Rabobank
“We don’t expect the Bank of England MPC to change its policy settings at this week’s meeting. This will mean that Bank rate remains unchanged at 0.75%.”
“We expect the MPC to stick to their guidance of slowly rising rates. Their confidence may even be bolstered a bit by some better-than-expected activity data, while the recent rise in oil prices is likely to have pushed the CPI forecast somewhat higher for the second half of 2019.”
“But the MPC is for now trapped in a holding pattern due to Brexit. If the uncertainties regarding Britain’s withdrawal do dissipate in the second half of the year, it may re-find the confidence to talk about rising rates.”
“But with the risk of a US recession in 2020 then already looking imminent, we believe the MPC may eventually prefer to hold off acting for longer.”
TD Securities
“We expect the Bank of England's MPC to leave policy unchanged at their upcoming meeting as Brexit uncertainty continues to dominate the landscape. However there is scope for the MPC to upgrade their growth outlook slightly and a chance one member (likely Michael Saunders) votes for a hike, so markets could take a hawkish signal from this meeting.”
“We expect 2019 growth to be upgraded slightly. Despite a likely upgrade to the MPC's 19Q1 nowcast, they will probably unwind much of that strength in 19Q2 and leave the GDP forecast broadly unchanged from 19H2 onward (we don't think the MPC will go as far as a negative q/q GDP print in 19Q2, but it can't be completely ruled out).”
“The inflation projection is likely to be left broadly untouched vs the February inflation report, especially in light of the recent price data coming in on top of the MPC's projection.”
“The MPC could have a communication challenge on its hands at this meeting: an upgrade to the growth forecast (even if mostly mechanical) alongside a possible dissent to hike rates immediately will lend a hawkish tone to markets. The press conference is likely to push back slightly on this interpretation, with the Governor stressing global growth concerns as one mitigating factor.”
“Brexit will undoubtedly feature heavily in the press conference. Many members of the MPC have softened their No Deal easing rhetoric. The key message will be, as always, that Brexit uncertainty weighs on the forecast, and that the BoE can't pre-commit to any response to the various outcomes. But the MPC will need to have a view on what the potential 6-month extension means for policy. Impatience could start to play a bigger role.”
“We don't expect any change to the forward guidance language, with the MPC committing to raise the Bank Rate at "a gradual pace and to a limited extent".”
Now let’s turn our attention to the charts starting with the pound:
GBPUSD
GBPUSD surged higher by almost 200 pips at the start of the week but the rise was capped when Fed chair Powell sparked a recovery in the USD last night. The region below 1.3120 remains potential resistance but a move above there would pave the way for further upside. Support may be found in the region above 1.3028 but be mindful of a potential S-H-S pattern forming. Source: xStation
GBPCAD
The GBPCAD pair has moved up to its highest level in a month this morning and there is some suggestion that price is looking to embark on an uptrend. The market is probing the top of the Ichimoku cloud on D1 and any hawkish turns from the BoE could support further gains. 1.7790 potential resistance above while 1.7320 could be seen as support. Source: xStation
FTSE (UK100.cash on xStation
The FTSE has underperformed its peers in recent weeks with the market pulling back while European stocks have hit 2019 highs and the US made a new all-time peak. Price has broken below a rising trendline from the Dec lows and with the 8/21 EMAs convergint here is a growing chance that a bearish cross could be about to print. 7322 possible support with 7550 potential resistance. Source: xStation
