Carney pours on the cold water in the UK, but it's Jobs Day in the US and it's all simmering away nicely......

Friday 6th November 2015

 

Carney pours on the cold water in the UK, but it's Jobs Day in the US and it's all simmering away nicely......

Ref : General

Before you say anything, we know we must be close to point of labouring the issue to death .... perhaps we've already passed it. We're talking about the way central banks offer "Forward Guidance" (or their particular version of it) with regard to their decisions on monetary policy. In the race for the title of the "world's most frustrating central bank " on this issue, Governor Mark Carney may just have inched the Bank of England in front by a nose.

Mr Carney's unexpectedly doveish statements look to have put paid to any likelihood of a UK rate rise in the near future. By talking of the global risks to the UK economy, and the fact that as things stand the B of E would not expect inflation to exceed its target of 2% until 2018 even if rates stayed at the current 0.5% , means that expectations of the first rate hike are being pushed back to much later in 2016, or even 2017. Also on his mind may have been the strength of sterling, which has duly taken a battering since the rate decision and subsequent press conference.

Some months ago, when the world at large seemed happy to believe that there was little or no chance of an imminent UK rate hike, Mr Carney and his colleagues went out of their way to stress that such an event was very possible. This time around, when surprisingly strong manufacturing data has been encouraging hawkish sentiment, the B of E releases its most doveish statement of recent times.

Now, no one is suggesting that the B of E's approach to guidance, in particular its efforts to insure against market shocks, takes the form of merely making statements that contradict prevailing market sentiment  --  only a simpleton would think that (don't say it !) . Nor is there any suggestion that what they are saying is "wrong", or that their policy decisions are anything but the correct ones. But are they obliged to say too much ? A change of circumstances that induces a change in thinking is perfectly reasonable, but if that means statements have to be made that contradict previous ones it can leave markets confused and does little for central bank credibility. Is it too much to think that investors, traders, analysts, Uncle Tom Cobley and all understand the myriad factors that go into a policy decision, and that those factors can change ? Plainly, current practice suggests it is.....

In contrast, it's October Employment Data day in the States, where they're really getting a head of steam up. The consensus expectations :

 Non-farm payrolls : due 180,000 (range 130,000 - 220,000)

Unemployment Rate : due 5.0% (range 4.9 - 5.1%)

Ave. Hourly Earnings : due +0.2%

Even though there's another set of employment data to come before the Fed's December meeting, today's numbers are being built up to be THE crucial set of data for the decision on rates. That may not be entirely logical  --  two sets of consecutive data would be more convincing than

one  --  but is no doubt a reaction to the Fed's more hawkish statements after the October meeting, sentiments confirmed this week by individual comments from the Fed's big three (Yellen, Fischer, Dudley). Futures are suggesting that the probability of a December hike is now around 57%, in other words slightly more likely than not. The markets have thus come round to the way of thinking adopted by economists, who on balance have always been more hawkish.

It's going to take a pretty awful number to undermine the new-found enthusiasm for a December move ..... and watch out for revisions to previous numbers which as we know can have quite a bearing.