UK Interest rates ‘likely to rise in May’ despite Brexit

 After the Bank of England’s (BOE) policymakers released a series of hawkish signals recently, it is expected that the central bank will raise interest rates in May, but Reuters surveys show that

  Most interviewed analysts believe that in the following year, the central bank will no longer have any further action. The reality in the UK has caused a hesitation in raising interest rates. In the major industrialized countries, the British economy has been trailing from the front runners and facing the most profound changes since World War II: Brexit.

  In fact, the latest Reuters survey revealed that analysts have not made any upward adjustments to the originally estimated inflation and growth. The current general opinion is that

  There is a 20% chance of Britain’s disorderly exit from the EU, but some analysts believe this possibility has increased over the past week. The analyst’s estimate range is 5-60%. The median estimate of the likelihood of an out-of-order exit from the EU reached a high of 30% in July and October last year.

  The survey was conducted during March 5-7 and all but one analyst expected the Brexit transition agreement to be reached. Almost all respondents believe that the UK and the EU negotiated a free trade agreement is the most likely outcome. But the second possibility is that no agreement is reached, then the United Kingdom and the European Union will conduct trade in accordance with the rules of the World Trade Organization (WTO).

  Staying within the EU market and canceling Brexit completely are the third and fourth possible options.

  More than 90% of the same group of respondents said prior to the referendum on June 23, 2016, that exit from the EU would hurt the British economy, triggering a decline in the pound and pushing up inflation. All these expectations have been fulfilled. At present, the Bank of England is still working to solve the problem of excessive inflation. At present, the UK’s inflation rate is 1 percentage point higher than the central bank’s 2% target. The central bank believes this is due to the lack of economic growth potential and the fact that the unemployment rate is at a historically low level.

  Barclays economists Sreekala Kochugovindan and Fabrice Montagne pointed out that “one of the main arguments in support of this statement is that demand shows signs of increase and supply has not seen an increase. Although our main forecast scenario is still August Interest rates, the risk of the central bank ignoring weak data and raising interest rates in May is not small.”

  The Bank of England’s interest rate hike in May is by no means a foregone conclusion.

  Among the 63 respondents, 36 (57%) expect to raise interest rates to 0.75% in May. This proportion is basically the same as in February. About 60% of respondents expect the UK index interest rate to come to 0.75% at the end of the year; one-third of respondents believe that by the end of 2019, the interest rate is 1.25%, and the second and fourth quarters each have a rate hike, though Fewer respondents are willing to predict so far. They predict that the inflation rate in the United Kingdom after one year is expected to fall from the current 3% to 2.2%, an average of 2.5% this year, and an average of 2.1% next year. This is consistent with the survey in mid-February.

  Alan Clarke, head of European fixed income strategy at Scotiabank of Canada, said he maintained his usual expectations of the Bank of England raising interest rates to 0.75% in May. Clarke pointed out, “However if consumer price inflation really slows down significantly in the coming months, we fully expect this interest rate increase to be questioned.” He predicts that inflation will fall to 2.5% by March before the Bank of England The estimate is 2.8%. “As long as core service inflation, which is domestic inflation, does not fall together, it is still possible to raise interest rates in May.”

  Another Reuters survey on Wednesday estimated that

  The pound against the dollar year after the expected rise to around $ 1.41, will formally withdraw from the British EU less than a month time, which shows currency strategist at UK and EU can achieve a smooth exit from the euro and the transitional agreement optimistic. However, since the biggest economic uncertainty currently lies in the political solution of Brexit in the UK, it is difficult to predict the future by using traditional economic models, analyzing the effect of base period, and estimating idle capacity.

  Some interviewees specifically mentioned that there is still a big gap between domestic political expectations and the conditions proposed by the EU. Germany Peter Dixon Commerzbank analyst said he expected the possibility of disorderly exit from the euro in Britain is 20%. “…if the Prime Minister Theresa May and the harder side of Europe are on the same front, then the possibility of an out-of-order escape from Europe will greatly increase.”

Should The Federal Reserve raise interest rates or Will it be harmful to economic recovery?

Should The Federal Reserve raise interest rates or Will it be harmful to economic recovery? 2018 interest rate hike
The Fed seems to be tightening its monetary policy recently: it began to gradually reduce the size of its $ 4.5 trillion balance sheet in October last year. At the same time, the market expects the United States to advance plans to raise interest rates gradually. From March 20 to March 21, the Fed will hold the next monetary policy meeting. The latest statement from the top decision makers shows that the number of interest rate hikes this year may reach four times – more than the three interest rate increases predicted in December.

However, the St. Louis Fed chairman and a few doves from the Federal Reserve Bank, James Bullard, said that if the Fed raises interest rates four times in 2018, it may lower inflation rates – especially when it cuts its asset holdings program. The bigger the time.Download APP Read more about this article
  However, the St. Louis Fed chairman and a few doves from the Fed top James Bullard said that if the Fed raises interest rates four times in 2018, it may reduce the inflation rate—especially when it cuts its asset holdings program. The bigger the time.

  In an interview with Brad UK he said in “Financial Times” interview, said: “In this environment, in fact, do not have to take this great restrictive policy stance, if excessive interest rates, then this will be applied to the inflation target below the level in A certain amount of downward pressure.”
  Support interest rate increase

  However, the Federal Open Market Committee’s stance on raising interest rates has become more and more hawkish, mainly because the non-farm economy performed well last month – the employment market increased by 313,000 workers.
  But Lee Brainard, the former U.S. Deputy Treasurer who was the leading dove of the Federal Open Market Committee, said last week:

  Progressive rate hike may be appropriate because “headwind factors US economic growth has been reversed for the wind factor” – the remark from new Federal Reserve Chairman.

  Also holding the view of raising interest rates is Boston Federal Reserve Chairman Eric Rosengren. On Friday (March 9th), Rosengren called for more than three increases in interest rates this year, adding that the annual core inflation has reached the Fed’s target for the last three months and six months.

  On Friday (March 9) the release of nonfarm data showed US employment in good condition, in the case of rising labor force participation rate, the unemployment rate was only 4.1%.

  The rate increase is limited

  The non-agricultural data shows that the salary growth in the United States has not declined and the average hourly wage rate has increased by 2.6%, but it is far weaker than the increase in January (2.8%).

  This has led some Fed’s doves to believe that the job market may be idle and affect the inflation outlook. Therefore, it is necessary to take a cautious approach to raising interest rates.

  But even if the Dovish faction admitted that the Fed may change, the U.S. Congress approved a $1.5 trillion tax cut in December, and in February Congress passed an agreement to raise the federal spending ceiling.

  The United States Minneapolis Federal Reserve Chairman Kashkari opposed the Federal Reserve’s interest rate hikes in December. On March 1st, he said he saw signs that inflation expectations are gradually rising. The reason was that he was influenced by consumer and business optimism. Kashkari emphasized that interest rate decision-makers should also consider the impact of fiscal policy.

  Brad said that he does not want any major impact of changes in fiscal policy, but he is willing to support the increase in interest rates in March, because it may boost the economy.

  Brad said that the so-called neutral interest rate – that is neither inhibiting nor promoting the economy – is still very low, so the room for raising interest rates without affecting inflation is very limited. He also doubted whether the Fed will be able to raise interest rates four times this year.

Fed Officials Are in favor of Raising Interest Rates

Fed officials are in favor of raising interest rates three times this year; the market may have underestimated the risk of rising oil prices
  A Federal Reserve official believes that the current employment situation in the United States, the Federal Reserve is expected to raise interest rates, the oil market may be due to insufficient oil prices, but the market may not how to care about this risk.

  United States Time 6 Tuesday, the Dallas Fed President, Robert Kaplan, interviewed CNBC declaring he favored raising interest rates three times this year; the action should not be too late. He believes that the United States is at or near full employment, and the jobless rate will fall to 3% this year. In such a situation, interest rates should be kept.

  Kaplan predicts that the oil market will maintain a “delicate balance” in the next few years but may experience rising oil prices due to under-supply. Because the supply of shale oil in the United States will fluctuate with fluctuations in oil prices, large-scale oil and gas projects by energy companies will see a decrease in massive investment in shale oil production while pushing up total U.S. oil production. This creates a risk of short supply. He believes the market may not have considered this risk too much.

  Last week Trump announced that it would impose tariffs on imported steel and aluminum products, which Kaplan said could give “some horrific impact” to the United States ‘ trade relations with Mexico and Canada. However, given the strong ties with these countries, The trade relations are in the interest of the United States, and he is optimistic about the real landing policy.

  Kaplan did not have FOMC voting rights this year, and his voting rights turn to him in 2020. Earlier on Wall Street, the Federal Reserve announced in December last year that it was expecting a bitmap of interest rates when most of the Fed officials expected a total rate hike of three times this year. But recently the market is increasingly expecting the Federal Reserve to raise interest rates four times this year.

  Last Tuesday the new Fed chairman Bao Weier in the House of Representatives testified, “is expected to raise interest rates further gradually,” the US economic outlook remains strong, market volatility will not stop the pace of rate hikes. The market is expected to raise interest rates four times; the 10-year U.S. Treasury yield returns 2.90%.

  Last Thursday, the Fed “number three” and New York Fed President Dudley mentioned the possibility of four rate hikes this year. “If we are to raise interest rates four times and add 25 basis points at a time, I believe it will still be gradual,” he said, pointing out that it would be half the level of the radical tightening of the Fed’s ten-year policy ten years ago.

  Powell’s attitude on the testimony of the Senator last Thursday was not as pronounced as Hawk last Tuesday. Wall Street anecdote mentioned later; the market has adequately predicted the possibility of raising interest rates three times, CME’s measurement tool shows that the federal funds rate futures market is expected to increase the probability of four times the rate of 30%.

The Fed chairman Claims there is no sign that the U.S. economy is overheating

  US Federal Reserve Chairman said there was no indication that the US economy is overheating,

  At a hearing attended by the U.S. Senate Banking Committee on the same day, Powell said there are still some weak factors in the U.S. employment market. For example, the labor force participation rate of “golden age” (aged between 25 and 54) is still below the pre-crisis level Evidence of rapid wage rise remains unclear.

  Powell said the continuing improvement in the job market will not lead to a rapid rise in inflation.

  At present, the unemployment rate in the United States has dropped to 4.1%, which is already at or below the level of full employment economists think. However, the inflation rate is only 1.7%, which is still below the 2% policy goal of the Federal Reserve.

  Powell stressed that the Federal Reserve will continue to raise interest rates gradually, to promote inflation to the target while ensuring that to avoid overheating the economy.

  Powell earlier testified before the House of Representatives that the U.S. fiscal policy has become more active and will stimulate economic growth. Strong overseas demand has provided effective support to the steady growth of U.S. exports.

  The current market is expected, given the strong economic outlook in the United States, the Fed may raise interest rates four times this year.

  According to reports, the New York Fed Governor Dudley said in Sao Paulo, Brazil, the rhythm of raising interest rates four times can still be considered as gradual. He said fiscal stimulus measures such as tax cuts and increased government budget spending will boost economic growth in the short term, thereby supporting the Fed to raise interest rates further.

VIX falls Friday after volatile week

CBOE VIX fear index ends lower after three consecutive advances.
The CBOE VIX (NYSEARCA:VXX) declined on Friday, snapping a three-day winning streak, as U.S. stocks pared losses in the final hours of trade.

The Chicago Board Options Exchange (CBOE) Volatility Index closed down 12.8% on Friday but still showed strong gains for the week.

Trade wars, rising interest rates and tax cuts make for a volatile mix.

The EUR resumed rising against the USD

The euro resumed rising against the dollar regain the political risk of the week or around the Euro.

On Friday  The euro continued the increases against the US dollar following the previous session, beginning from a multi-week low, continued to rise above the 1.230 mark. Market demand for the euro is still growing, promoting the exchange rate rose, the exchange rate hit an intraday high of 1.233, almost recover the declines of last week. As of now, the euro against the dollar traded at a price of 1.2317.

Anxieties over a triggered global trade war sustained tendency to sell the dollar following U.S. President Trump declared a high tariff on imported steel and aluminum, which seen as one of the key factors pushing the euro higher against the U.S. dollar.

Meanwhile, the global stock market sell-off further supported the position of the euro as a financing currency, boosting the EUR/USD continuation of the previous day’s trading momentum. The day before, the euro rebounded sharply against the dollar at a low of 1.2155 and hit a hundred points.

The current exchange rate of The euro against the dollar remained at 1.2320 the first recovery from this week’s decline. It may now be time to retest the 1.2540 resistance above the downturn in the U.S. economy. Although the US consumer sentiment index reached 99.7 in February, surpassing the previous forecast of 99.5, the euro as a whole still maintained its upward trend.

In the meantime, the upcoming ECB meeting will be the next major risk event for the euro. Next Thursday (March 8) the European Central Bank will announce the March interest rate decision, most likely to delete QE flexibility related terms, but only slightly support the euro, as the European monetary policy tone will be partial to the overall pigeon.

If expected to be realized, the move by the European Central Bank will be comparable to the situation in early June last year, when the ECB discarded the interest rate flexibility policy and the euro did not respond immediately. However, at the end of June, the market started to price the ECB normalization Monetary Policy.

Also, Italy will hold a national election this Sunday, the political risk may drag on the European Central Bank’s interest rate decision, and the German Social Democrats and the German Chancellor Merkel led the CDU to establish a ruling coalition will also vote on the same day.

Concerns over the global trade war triggered a sustained propensity to sell the dollar after U.S. President Trump announced a high tariff on imported steel and aluminum, which seen as one of the key factors pushing the euro higher against the U.S. dollar.
technical analysis
The euro is currently under pressure at 1.2332 against the dollar, if stabilized below the level above, then the short-term resistance to see the 1.2390-1.24 range, and finally the previous test high of 1.2550 near the test.

On the other hand, if the exchange rate fell again, the recent support at 1.220-1.2195 below the range, once again broken under the concern 1.215 can efficiently support.