Dovish central bankers

As it is Thanksgiving and probably close to being as important a day in the American household as Christmas day, US equity markets are shut on Thursday and only open briefly on Friday. Volumes will fall off a cliff. However, it did seem appropriate to pick up on a few stories making the headlines into the Thanksgiving weekend.

The Budget, enough column inches will be written that anything we write will probably add little value to the sum total. From a macro point of view, the lowering of economic growth forecasts to an average of just 1.4% for the five years, could well put the brakes on Mr Carney’s desire to raise interest rates again anytime in the near future. One does also have to enter the caveat that the Bank have been historically poor at forecasting one-quarters growth from the nest, so going five years out is very much a finger in the air job. Ten-year gilt yields have now fallen back to 1.26%, and remain well below the rate of inflation. On Thursday the second estimate of UK third-quarter GDP reaffirmed the preliminary reading that the economy grew by 0.4%.

As an opinion poll released on Thursday gives Theresa May a slender lead, the pound continues to defy the bears. The pound now trades back above 1.33 to the US dollar.

The Federal Reserve released the minutes from their last meeting on Wednesday evening and it would seem that a rate rise in December is still on the cards. This is despite comments from Janet Yellen on Tuesday evening that she found the current low level of inflation mystifying. The dollar lost ground against its basket of currencies after the release of the minutes.

Europe appears to continue to be going gangbusters as there was a sharp rise in the November Purchasing Managers Surveys. The composite of services and manufacturing index came in at 56.2, well ahead of the 55.1 forecast. This would suggest that there may be further upgrades to estimates for fourth-quarter growth in the euro area. The minutes from the last ECB meeting reported a broad agreement that the current monetary stimulus via the bond purchase program, should continue through to September 2018, however some members would have preferred a defined date for when the purchase program would stop. One would imagine the leading voice for this would have been Germany.

After the year we have had, investors will now hope for the icing on the fruitcake, with a Santa rally, fingers crossed. From the Bank of England’s macro data to Janet Yellen’s comments and the ECB minutes it would still appear interested rates could remain close to where they are for some time to come.

Posted on November 23, 2017 .