Deadlocked [Video]

The Day So Far…

Coming in this morning I must admit I was a little surprised by the markets moderately dovish reaction to the FOMC minutes. The main culprit of this response was the fact that “many participants expressed concern that low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent”. Although this dovish comment was tempered by the fact “many officials saw another rate hike as warranted this year” it did raise the pulse for a momentarily period, however, has not changed the perception of a December move with FFR futures still pricing in an >80% probability of a third and final hike for 2017.

Other than that it has been quiet as the market gear up for a busy afternoon ahead. The Catalonia situation is on the back burner for the moment following Rajoy yesterday giving the Catalan President the deadline of Monday morning to formally declare its independence. Given this timeline I would expect the weekend press to be more insightful allowing talks to take place behind close doors for the time being. Meanwhile, the fifth round of Brexit talks looks set to finish at the same point it begun with my favourite quote coming from a person familiar with the talks in the FT, stating “there was nothing, zero, no progress”. More of this in my briefing for those interested below.

The Day Ahead…

A busy afternoon to come with economic data, central speakers from the big three (Fed, ECB and BoE) and JP Morgan and Citi kicking off the latest round of bank earnings. One area of interest specific to the banking sector will be their trading incomes given this unprecedented era of low volatility with suggestions numbers could decline by as much as 15% and 20% Y/Y respectively.

Despite ECB President Draghi and Fed front runner Powell speaking later today the one individual I will be watching closely is BoE chief economist and MPC member Andy Haldane, who is due to participate in panel discussion on Rethinking Macro Policy in Washington DC. The reason for my interest is I feel the market is misplaced in its positioning that a rate hike could occur in November (currently priced at 65%) and Haldane is seen as the most likely of the majority to cross over into the hawkish camp. Therefore if a near-term hike is genuinely on the table then I would be expecting Haldane to up the rhetoric in order to prepare the market for the fact that change is a foot. However, this does not change my baseline view. I do not foresee the Bank raising rates this year, or in fact, any time soon.