Fundamental Macro

I received the question below earlier today about potential short sterling reaction to the BoE on Thursday. I thought I would post the answer below, and follow up tomorrow with some more detailed thoughts on what will likely be an eventful day.

Mick, would you agree on the following ?

Re Thursay’s BOE vote on “super Thursday” we’ve polled market participants on what the market reaction to the vote will be and get the following (albeit small sample)

vote reaction
5-4 potential for big sell off
6-3 sell off across curve especially in Red if Forbes is one of the dissenters. If only Miles/Weale/McA then small sell off
7-2 unch
8-1 unch to small rally
9-0 rally across the curve

note that Carney will have a chance to correct market reaction during the press conference 45min after the vote is published. There will also be the minutes and projections.. so a lot of data to go over.

Thanks for the question. Those responses look pretty much right to me. I think if we get 5-4 then we see a 15bp sell-off in the front end (maybe slightly less if it is internal/external split). Essentially fully pricing in November.

If 6-3, agree that it is different if one of them is Miles (I actually doubt he will), to say Forbes. But I would be more alert to an internal vote for a hike (eg Broadbent). I doubt it will happen, but that could almost be as strong a signal as 5-4.

If just Weale and McCafferty, I think there will still be a small sell-off, and 8-1 a small rally.

I would expect 9-0 to see an early sharpish rally, but to be reversed later in the day on a hawkish sounding presser.

It is going to be an interesting day for the short sterling market whatever the outcome. It is an awful lot of information to digest, and the market tends not to do a very good job of that (at least in terms of first reaction). B’berg headlines will dominate the initial move, but the presser, minutes and IR could reverse it (or reinforce it)!