Pound extends BOE led recovery

There’s been further gains seen in the pound as the market continues its recovery aided by the unexpectedly hawkish shift seen in the Bank of England announcement yesterday. The sharp move higher in sterling weighed on stocks yesterday with sizable declines for the FTSE, but today’s session has enjoyed a bright start with the index looking to recoup some of the losses and higher by more than 50 points,  although it still remains on course for a 3rd consecutive weekly decline.

August rate hike back on?

The latest update from the BoE has seen the markets react by making an August rate hike odds-on once more, but given the unpredictable nature of the MPC a healthy dose of skepticism remains warranted. Given the substantial sterling depreciation seen since the bank backed-down on raising rates in May, there is a case to be made that the latest statement and the dissent of Chief Economist Haldane is an attempt to stem the declines in the pound which threaten to impede inflation falling back to target with the current policy mix. This central bank trick called “jawboning” refers to policy makers seeking to talk markets where they are deemed more favourable without having to act by changing policy. Political risk has receded slightly with the latest victory for the government but this is unlikely to improve much further as far as Brexit is concerned in the coming months and unless there’s a marked pick-up in economic data there remains a good chance that hawks are disappointed once more this summer.   

OPEC output deal remains uncertain

Today’s OPEC meeting in Vienna represents a potentially major event for the oil markets, with the organisation believed to be close to agreeing a deal which would see the group’s output rise by 1m barrels per day. An increase would effectively reverse the supply cuts announced 18 months ago which have seemingly yielded the desired result in supporting the oil price, with the price of Brent crude hitting its highest level in 3 ½ years last month after rallying 50% in just 6 months. However according to reports a consensus has not yet been reached with the Iranian oil minister apparently not willing to raise production and this could be a key event to watch out for heading into the weekend.