Revenge of the wimps

Last night it was the turn of the Bank of Federal Reserve Bank of England, Japan, Europe and Australia, I mean the Bank of England, to give markets another hawkishly dovish policy decision. Despite telegraphing future rate hikes pre-meeting, the BOE bottled it on the day, preferring to wait-and-see the effects of employment from the end of the Government’s furlough scheme. The BOE did signal hikes were still on the way to their credit, probably starting in December, as did the Norges Bank yesterday. Possums in the headlights and central banks have been muttered a lot by me this week.

Sterling slides after BoE non-move

There was no doubt long sterling and short UK rates was a crowded trade. And markets reacted appropriately afterwards, GBP/USD collapsing 1.30% overnight and UK yields falling. Having all but promised markets a rate hike next month, assuming UK employment holds up, the BOE will have some serious credibility issues on its hands if it doesn’t. As I have said before, zero per cent rates bother me not; it is QE that has to go, having rapidly reached its use-by date. QE makes those who can afford to belong assets richer, while those who are young and having their future wealth stolen, those on low or fixed salaries, those who rent, are made poorer. The double kidney punch is that “transient” inflation will further erode their spending power. QE-ing into an inflationary environment is economic stupidity that is saving up serious societal problems for the future.


The Bank of England decision sparked a rally in European and US bond markets, and the street swivelled back to lower for longer. I suspect that has as much to do with market positioning than lower for longer, though, as the US dollar continued to power higher overnight. From my perspective, that is a warning that the drop in US yields may only be temporary. Gold was a significant beneficiary of lower yields, rising 1.25% overnight. But again, the higher US dollar warns gold’s day in the sun may only be temporary.


How temporary, will likely be decided by tonight’s US Non-Farm Payrolls data. Market expectations are hovering around 450,000 jobs added, with another fall in Initial Jobless Claims overnight suggesting that the job market is finally moving. A print north of 500K likely stirs the inflation, taper, and hiking noise again, and could see that rally in bonds overnight evaporate along with gold. Conversely, another disappointing number sub-350K is likely to have the opposite effect and will see the US dollar given an end-of-week slapping.


In Asia today, Japanese Household Spending rebounded by 5.0% MoM for September, thanks to a low base in August due to Covid restrictions. The YOY number was still negative, and markets seem more on comments on the news tickers by Japanese officials regarding the makeup of the forthcoming stimulus package. Philippines Inflation rose by 4.60% YoY in October, but thankfully, eased to just 0.20% MoM. That will be a relief to the central bank, whose policy settings are far below inflation but still leaves the country among the more vulnerable in ASEAN to a Fed taper-tantrum, should it occur before the end of the year. Indonesian GDP disappointed, rising only 1.55% QoQ Q3. Still, with life here back to normal in Jakarta (including traffic and flooding) and firm commodity prices, the Q4 data should show an accelerating trend helped by a long-awaited consumer spending rebound.


China nerves appear to be rising into the week’s end. Property developer, Kaisa had its shares in Hong Kong suspended today. Units of Evergrande have an offshore bond payment deadline tomorrow. And Caixin is running a story that the regulators have instructed some banks to hold wealth management assets at present levels. China’s shared prosperity intervention never went away; they just took a holiday. All I can say, is buyer beware with the Central Committee meeting also running from the 8th to 11th next week. That has put Asian markets in a cautious frame of mind today, waiting for the US non-Farm Payrolls tonight and developments in China as well.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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