Trading with point and figure

oil/wti

2nutx1g.gif
 
Post BoE thoughts: 'A kitchen sink job' - one obvious benefit, but plenty of repressive, disruptive elements

a) 25 bps rate cut with the prospect of a cut to 0.1% (but not below) if forecasts are validated, with a unanimous vote, but the economic benefit is likely to be negligible, other than avoiding a back-up in Gilt yields if they had not delivered. Primary impact: an even greater level of financial repression, more pressure on pension funds to reach for yield to compensate for income deficits, and even large corporate pension deficits. As many consumers have already fixed their mortgage rates for term periods, and there are far fewer (base rate) 'tracker' mortgages, the benefits for housing market may be marginal; affordability is still the key issue. It will put pressure on smaller banks and building societies to find alternative forms of income, which in turn implies less scope to cut loan rates, while some deposit rates will likely turn negative.

b) £60 Bln of additional QE over next 6 months, which BoE says could rise to up to £170 Bln - this has helped 10-yr Gilt fall to 0.66% from 0.80% prior to the decision, but further impairs already poor level of liquidity in the Gilt market. It may at the margin delay some GEMMS from ceasing their market making activity. Otherwise, the same points as above apply in terms of financial repression. Plenty of dissent on the vote on this one - Forbes, McCafferty and Weale all voted against.

c) £10 Bln Non-financial Corporate Bond purchases over 18 months - limited to companies with headquarters in UK. Frankly this is rather futile. It is at least targeted, but it will primarily benefit large corporates such as a BP, GSK, along with Utilities and Property companies, but given the size only very marginally.

d) £100 Bln (max) Term Funding Scheme - this is by far the most important element, and given the previous experience with the FLS schemes, it should in theory be far more effective than any of the above items. But as has been obvious for a very long time in G7/European countries, ensuring credit availability is of course wise, but credit demand will be determined by a multitude of other factors, over which the political fraternity will have some influence, and the BoE has little or none. Truth be said, this will be the litmus test in terms of providing support to the 'real' non-financial economy, and items a) through c) primarily run the risk of creating dislocations and bubbles in the financial economy... as though more were needed.

e) CPI forecasts - the upward adjustment to the 2 and 3 year forecasts was in truth very modest, and the risks are definitely skewed to the upside, especially if GBP remains at current levels vs. the USD, and above all if oil prices were to climb into a $50-60 range.

f) Unemployment forecast - revised rather more sharply higher to 5.6% from prior 4.9%, suggesting that this is where the greatest risks are seen, and per se implying downward pressure on wages medium-term, given greater labour market 'slack'.

g) GDP forecasts - while the 2017 downgrade was sharp - 0.8% y/y from 2.3% y/y; 2018 GDP is projected to rebound to 1.8%, i.e. just below trend rate; the latter could well prove to be optimistic, especially if Brexit negotiations are very protracted and opaque, which would likely weigh on business investment and labour demand, perhaps in a more permanent way. As has been well documented, the BoE's forecasting record is poor, so all of these forecasts are best treated with a high degree of caution and scepticism, the more so given the very high level of uncertainty about how the uncharted territory of the Brexit negotiations plays out. As an aside, it has to be observed that the fact the BoE sees H2 2016 GDP as close to flat, rather than sliding into recession, implies that they had rather more time to consider incoming data and the most appropriate policy response thereto, than is the case.

h) Other 'options to provide stimulus if needed' - what else were they going to say? Central banks have yet to admit that they have exhausted their monetary policy toolboxes.

i) The real pressure is now on the government to fashion a suitable fiscal stimulus, with some details likely to emerge ahead of the Autumn Statement. It is of course fortunate that the opposition is in total disarray, but it should also be very wary that the 'honeymoon' period in terms of public would be cut short, were the economy to take a sharper turn for the worse during the Autumn months (though this we would see as a risk, rather than a central expectation).

Market reaction has been relatively modest, with the Gilt market being the primary beneficiary thanks to the QE decision, while Sterling reaction has been muted. Attention can now shift to tomorrow's US Payrolls / labour report.

..........................................................................

Marc Ostwald
Strategist
ADM Investor Services International
 
cable update

14lkiop.gif

rez 1.3156-1.3179
supp/horizontal
1.3103-1.3130
1.3064-1.3087
1.3018-1.3041
areas
 
dentist007 said:
swissy...took the ftse trade
went extremely well
first ftse trade ever
Click to expand...

Excellent! Take a few more!!(y)

Your FTSE chart was much appreciated, P&F shows the levels perfectly, congestion etc etc, although personaly I use HA candles to trade.

I primarily watch oil, cable and US markets when trading FTSE for correlation.
 
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