Recent Articles

18th August 2014
Carney’s mixed messages. The bottom line: no rate hike until next year

Carney’s Mansion House speech in June sent sterling to a pre-crisis high and signaled an earlier than expected rate rise in Q4 2014. As has become traditional, there was an abundance of mixed messages in Carney’s speech. On one hand the economic recovery is on track and has exceeded previous growth expectations, on the other hand concerns in the labour market imply wider spare capacity in the economy. However, with central banks, it’s not the data that matters, it’s the choice of data interpretation by the committee that moves the markets. Navigating through the speech, we have outlined three key take aways and their implications for sterling.



1         Downsizing growth and concern over wages


“Pay growth has been remarkably weak, even as unemployment has fallen rapidly.”

Mark Carney, Press Conference 13th August 2014


Despite the optimistic projection of unemployment falling below 6% by the end of...

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11th August 2014
Eurozone – increasing the downside risk

On the surface of it, the recent ECB press conference last Thursday didn’t reveal anything new. The rates have remained unchanged and will remain low for an extended period of time, the commitment to use unconventional instruments to tackle the risk of deflation is still there... . However, two significant matters were mentioned that have substantially increased the potential downside risk in the Eurozone economy (but not necessarily for the euro).


 1.       The “good” and the “bad” countries


Mario Draghi was straightforward in pointing a finger at the trouble-makers and dividing the Eurozone between the countries that did implement the structural reforms “the good ones” and the ones that didn’t “the bad ones”. The absence of labour market reforms and excessive regulation of business activities were the root cause of Italy’s return to recession. Draghi emphasised that the lack of these reforms is the key reason why all...

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4th August 2014
The USD Comeback…

In recent weeks, the USD has rallied between two and three cents against a number of currencies, including the euro, the Canadian dollar, and even the mighty pound sterling.  Whilst various vulnerabilities in each of these three currencies played some role in the recent moves – the primary drive was dollar-centric.  Specifically, a number of US economic indicators, from employment, to consumer confidence, to manufacturing have begun to swing in a positive direction – culminating in last week’s announcement that the US economy grew at an impressive 4% annualized rate in the second quarter. 


In our view, there are four main reasons why we think that this recent USD momentum may continue:


  1. Improving yield differentials.  The USD currently enjoys a substantial yield benefit over the euro – but trails both the Canadian dollar and the British pound at the short end of the curve (<5 years).  However,...

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