BoE rate hike expectations postponed to November 2015

Market movers today

• In the UK the minutes from the MPC’s April meeting will be released. We expect that the committee voted unanimously in favour of keeping the Bank Rate and the stock of purchased assets unchanged at 0.50% and GBP375bn, respectively. We will look for any comments on the GBP, as the minutes from the March meeting revealed that the MPC has become more worried about the appreciation of GBP in recent months. Note that we have postponed our expectations for the first Bank Rate hike three months from August 2015 to November 2015

• We believe that consumer confidence in the euro area can continue to improve, although it is at the highest level since 2007. The still low oil price, declining unemployment rate and better financial conditions should support consumer sentiment further.

• The US NAHB index rebounded in April, suggesting that housing market activity is improving. We expect existing home sales to extend the February rebound in March and increase 3.4% m/m, which should take the sales pace back to late 2014 levels.

Selected market news

The main theme in the financial markets is still Greece. Yesterday was used to evaluate the move by the Greek government to force local governments to move deposits to the central bank. The initial reaction to the move was negative but in fact, the move came after international pressure and might be the first sign that Greek policymakers are starting to cave into EU, ECB and IMF demands in a situation where approval ratings for the Greek government are falling rapidly.

Yesterday Finance Minister Varoufakis said that Greece and its creditors are narrowing their differences, as officials on both sides recognise that the best chance of success is an accord that leaves them all a bit unsatisfied. The remarks were in fact mirrored by the head of the Eurogroup Jeroen Dijsselbloem who said: ‘I see some progress in negotiations, so this is reason for some optimism’.

However, a deal at the Eurogroup meeting on Friday seems unlikely and there now seems to be a mutual understanding that the real next deadline is end of June. It might also mean that Greece next week once again will move a bit down the financial agenda – at least for a while.

Market moves in the US equity session were a bit mixed with Nasdaq down 0.4% and Dow Jones up 0.5%. US yields rose slightly as the market once again put a higher probability on a Fed hike in September. In respect of the bond market, it is worth mentioning that we saw a steepening of the German curve yesterday, as 30y yields rose 4bp. The move came despite the Greek woes and a lower oil price, underlining that even for Germany there might be a lower bound for long yields. 30y German yields are still at 0.50%, trading close to an all-time low.