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2016-08-22
What can we expect from Jackson Hole?

After two months of relative calm in the financial markets, with many traders citing ‘holiday season’ for the lack of volatility, this week sees central bankers meeting in Wyoming for their annual symposium at Jackson Hole. In the absence of a Fed policy meeting this month, analysts will be looking for any clues from Janet Yellen about outlook for Fed policy and when to expect the next US rate hike.

 

At this stage, we shouldn’t forget that the Jackson Hole conference is primarily focusing on new research and big picture monetary / fiscal developments. As such, one key discussion points is likely to surround the topic of what policy makers might do in the future if the economic recovery starts to slip back into reverse again. A number of central banks have already experimented with negative rates and most others are close to zero while many have employed asset purchase schemes...



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2016-08-15
Is the UK nearing a current account crisis?

Currently, the UK’s current account deficit is at its highest value since the 1940’s, at 6.9% of GDP, a level that is only comparable to underdeveloped countries such as Honduras, Colombia and Panama. This means that the UK relies on foreign capital to finance this gap: as long and there is external capital coming in and plugging that hole, there’s no reason to panic (which is what we’ve seen over the last 16 years, or since the C/A has shown a deficit). The problem is that foreign capital inflows are not necessarily sustainable and may decline if the economic environment is uncertain and not as attractive to investors, which could be one of the side effects of Brexit – a least on the short-term. After Brexit the current account balance is expected to improve on the back of a weaker GBP which can bolster exports, lower imports and improve the...



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2016-08-08
Carney’s First Move: Fundamentals vs Positioning

Mark Carney took the helm at the Bank of England over three years ago, and proceeded to do very little (in monetary policy terms) for 37 straight months; no changes in interest rates, no changes in the quantitative easing programme, nothing. Well, Carney’s period of passivity came to an abrupt end last week, when all of a sudden, in the aftermath of Brexit, he seemed to want to pull all of his policy levers at once:

 

• Cutting interest rates from 0.5% to 0.25%;
• Increasing QE by almost 20% (including an expansion into the corporate bond market); and
• Launching a new bank lending programme (the Term Funding Scheme) to provide cheap funding to banks.

 

This reaction (especially in terms of the QE expansion) was a little bit more than the market was expecting, and sterling fell as a result, although not by very much (GBPUSD dropped a couple of cents from 1.3350...



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