Super Thursday

Daily Analysis - 08/02/2018

BoE Monetary Policy

Bank of England interest rate decision in focus as the stock market is still fragile from the huge sell-off. The US oil production tops more than 10 million bpd.

Bank of England Interest Rate Decision

Today, at 12:00 pm GMT the Bank of England (BOE) will publish its monetary policy decision. It’s not just a policy statement either. It’s “Super Thursday”.

“Super Thursday” refers to the quarterly simultaneous release of the BOE monetary policy statement, Monetary Policy Committee (MPC) meeting minutes, and the Inflation Report. Those could all be some of the major catalysts for the pound’s forex moves. The icing on the cake and what makes this Super Thursday super is the BOE Inflation Report, which contains more details on the central bank’s growth and inflation outlook and provides clues on what policymakers are planning next.

Dovish comments could indicate that monetary stimulus might stay in place for much longer while hawkish estimates could suggest that the central bank is gearing up to tighten soon. Pressure is mounting on increasing the rates in May.

The BOE last November raised its interest rates for the first time since 2007, pushing it from 0.25% to 0.50%

More importantly, Governor Mark Carney confirmed speculations of two more rate hikes from the central bank, saying that “We in fact need those two additional rate increases in order to get that return of inflation to target.” The question is how fast BOE will move towards tightening the market.

US Oil Supply Climbs above 10 Million bpd

Oil prices found support on Thursday as a North Sea pipeline closed down and record Chinese imports countered U.S. crude production soaring past 10 million barrels per day.

Support on Thursday also came from the second shut down in as many months of Britain’s biggest 450,000 bpd Forties pipeline network, which supplies much of the crude underpinning Brent futures, although operator Ineos said it would likely restart the pipeline by Thursday.

Traders also believed record Chinese crude imports in January of 9.57 million bpd could also be seen as another supportive reason for the prices.

Looming over markets, however, is the U.S. production exceeding 10 million bpd last week, to 10.25 million bpd.

One of the steepest rises of any oil producer in modern history, U.S. output has surged by more than 20% since mid-2016, undermining OPEC’s and Russia’s efforts to tighten the market and push prices higher by putting a ceiling on production.

At 10.25 million bpd, U.S. output is now higher than the previous 10.044 million bpd record from back in 1970. It’s above that of top exporter Saudi Arabia’s and within reach of Russia‘s.

Stock Market still Fragile

Investors remained on edge after a big selloff in equities in the past few days on worries about the prospects of rising interest rates around the world, which would shut off the liquidity that has underpinned a cheerful rally in riskier asset.

Monetary and fiscal policymakers try to explain the warnings they receive from the volatile markets of this week. At the same time, their policies are seen very closely by investors to take positions in the market.

New Zealand’s central bank said yesterday that volatility in equity markets this week was a warning sign that global investors are nervous about the risk of higher inflation and rising interest rates.

Combined with an expected economic boost from President Donald Trump’s planned tax cuts, the increased deficit spending could overheat already strong U.S. growth and accelerate inflation to levels not seen over a decade.

Last night, U.S. congressional leaders reached a two-year budget deal to raise government spending by almost $300 billion, it was received by global share markets remained on edge as U.S. bond yields moved towards four-year highs.

Living in the new era of increasing global growth and moving away from globally low interest rates, every central bank meeting has its own suspense to see how they will pave the way for their future path.