Ah yes ..... THAT'S how "Buy the Rumour, Sell the Fact" works ref :- General

Just very quickly ..... we were talking only yesterday about that old market proverb  "Buy the Rumour, Sell the Fact" , and how the most likely outcome of the Bank of England's rate decision would probably provide us with a good example of the phenomenon. It's obviously nice when things work out as you expect them to, but more importantly for those new to the markets, the reaction of both Sterling and Gilts provided a textbook case in point.

The BoE duly obliged with a 1/4 point rate rise at lunchtime today, a move that was very well signposted by its officials and was almost entirely expected. Traders had been buying Sterling for a little while in advance of the hike and had taken GBP / USD briefly above $1.33 on Tuesday  --  even 24hrs ago it was still trading at $1.3250. Once the move was out of the way (and crucially the BoE also indicated that there were no plans for any more hikes anytime soon), the rationale for being "Long Sterling" disappeared and traders exited, or even reversed, their positions. GBP / USD sank immediately to below $1.31, and Gilts rallied sharply (as yields fell). Thus the announcement of a rise in the base rate actually sends the currency and bond yields lower, which to those outside the market might seem counter-intuitive.

In truth so widely forecasted had the decision become that Sterling had already been on the way down before the announcement, though that move was also a result of UK Defence Minister Michael Fallon's resignation after admitting to incidents of inappropriate behaviour in the past. Mr Fallon is the first to fall as a result of the slightly hysterical sexual harassment storm gripping Westminster at the moment, and since (ironically) he was known as a safe pair of hands his resignation will be a blow to PM May. With her shaky grip on power, she can ill-afford such losses.

Even though a big majority of investors were expecting the rise in the base rate (from 0.25% to 0.50%, just in case we hadn't mentioned it), many of those at the same time were questioning the wisdom of it. That being so, the fact that the BoE confirmed that this was not the start of a tightening circle should not have come as much of a surprise either. "One and Done" always seemed much the most likely outcome, and arguably this particular market move in Sterling was one of the easier to predict in what's been a rollercoaster ride. Now though, we're going to be back to assessing Sterling's value through the prism of the progress of Brexit negotiations, or lack of it, and the levels of uncertainty they induce in the UK economy. Good luck with that.

P.S. The US Federal Reserve kept rates on hold yesterday, while paving the way for a hike next month and "gradual" increases in 2018  ---   all entirely as expected from a long way out and therefore not market-sensitive. What could conceivably be market-sensitive however is the appointment of the next Fed Chairman, due tonight. As we've said, Jerome (Jay) Powell is now a pretty hot favourite, and as the "continuity" candidate you wouldn't expect much reaction if he duly got the job. The other contender of course is hawkish John Taylor ..... if he should get it, you might expect a sharp upward move in the Dollar and US bond yields (and downward for bond prices). It's looking a very long shot now though, although we hear that a few have considered taking a small punt on it, figuring that any downside is likely to be limited if a continuity candidate gets in. Then again, even President Trump would want to be springing any shocks when it comes to something as important as picking the Fed Chairman, would he ?

P.P.S. Look out for details of the bill being put forward to get the US administration's tax plans into law, being released by House Republican leaders as we write. Hopefully, some comment tomorrow.