The Bank of England needs to be bold today and take us off the drugs. They may well mention this is a “pause” to see down the line how we get up this creek without a paddle and whether inflation does indeed fall back in the next few months. We can almost discount the GDP numbers, which is more of a concern for the politicians than the Bank, as our high inflation rate has lessened the impact of stronger business, housing and confidence surveys in the overall growth number.
If we do see an end to the GE today then the focus will shift onto when the UK can expect to see its first interest rate hike. This also is a very delicate issue, and the Bank will come under pressure from all sides again with jobless numbers set to rise, but without raising interest rates sterling could weaken further fanning inflation. An unrushed “wait and see” approach to interest rate hikes would be the best option.
Whilst the politicians seem hell bent on avoiding the tough decisions and pandering to the electorate, the Bank has, for most of its part, remained independent and continued to advise that the budget deficit needs to be tackled in order to preserve the UK’s credit rating. The worst case scenario is if we end up with a hung parliament and dilly-dally around squabbling over how to deal with the deficit. This will almost certainly lead to a rating cut, a gilt crash and spiralling cost of financing our debt burden.
The FTSE is cautious ahead of the Bank’s decision at midday today and as I write, is testing yesterday’s low around 5235. Support might be offered here and punters are buying into this little dip. Below here support is seen around the 5200-10 area.
This morning Shell joined its counterpart BP in releasing disappointing numbers, but Vodafone is a star with a 5% jump back above 140p on some encouraging news about emerging markets.
After the BOE, we get the ECB, where once again the focus will be Greece. Their firm stance towards the Greeks is not expected to change and already we are hearing the right noises from their Prime Minister, but actions speak louder than words. Maybe our own Gordon should take note. Other member states are not immune though to similar problems and the likes of Portugal and Spain will possibly receive a slap on the wrist.
Later the weekly US initial jobless numbers are released, which have been stubbornly high of recent, but expectations are for a small decline to around 460K.
The greenback continues to have the edge at the moment driving cable back below 1.6000 after a brief revisit of the level yesterday. The rate is slowly edging towards a 6 week low of 1.5830 and below there is the 4 month low of 1.5700. A decline below here would mean cable will have broken out of its 9 month trading range between 1.7000 and 1.5700.
The euro and sterling will continue to remain out of favour as long as the member state bashing continues. Investors are getting increasingly concerned that there’s more to Europe’s problems than just Greece, so for now the dollar or the Swissie are better places to have your spare cash.
Volatility in currency markets has really picked up recently and is set to continue. With the central bank interest rates decisions today there could be some fireworks in these markets later this morning.
The traditional dollar safe haven seems to be coming back into play and this is leading to gold advances being short lived. The precious metal didn’t last long above 1120 and this morning is a little out of favour around 1104.0.