This week should show that financial stability joins inflation as a critical risk for policymakers. That means financial stability risks should significantly supplant other risks, including inflation, when markets are undermined as they were during the Gilt-led sell-off in global fixed income last week. Taming inflation requires the trouble-free functioning of the market's plumbing when tightening monetary policy. Hence central banks will be watching market liquidity gauges closely.
Brexit is far from over
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UK BoE announced additional measures to restore market functioning in long-dated Govt bonds. Increased maximum size of temporary Gilt purchase amounts from £5B to £10B until Oct 14th and launched a Temporary Expanded Collateral Repo Facility (TECRF). UK Govt to reveal medium term fiscal plan OBR forecast on Oct 31st, brought forward from Nov 23rd amid backlash following the ‘mini fiscal event’ on Sept 23rd which omitted the OBR forecast.