Intraday Market Thoughts

BoE Gets Tight on QE; All Eyes On FOMC

by Patrik Urban
Jun 20, 2012 13:35

GBP jumps on surprisingly tight MPC minutes; UK claimant count rises but unemployment stays steady; German PPI and Swiss ZEW dropped. Market turns to FOMC statement, projections and press conference. The 2nd Aussie long hit all targets, while 1 gold long was stopped out. See rest of details below.

USD trades slightly weaker across the board in the ongoing session. European equities trade between -0.5% and +0.1%.

BoEs MPC minutes from June 7th meeting showed tighter than expected 5-4 vote against additional QE. Three members (King, Miles and Posen) voted for extra GBP 50 bln and Paul Fisher wanted to boost easing by GBP 25 bln. All members voted for rates to remain at 0.5%.

Weighing on GBP was the unexpected increase in UK jobless claims, which rose 8.1K in May from previous -12.7K implying that the labor market started to be adversely impacted by the ongoing tensions. However, the claimant count rate remained steady at 4.9% and the ILO unemployment rate stayed at 8.2%.

In other news, German PPI dropped 0.3% in May from +0.2% m/m and eased to 2.1% from previous 2.4% y/y and Swiss ZEW economic expectations dropped dramatically to -43.4 in June from -4 in May. Spanish 10 year yield eased a bit from 7.05% to current 6.92% and the Italian 10 year yield declined from 5.94% to current 5.83%. EURUSD continues to trade around 1.27.

Onto the FOMC Decision

The key event for today's NY session will be the FOMC meeting. The FOMC will release its statement at 12:30 am ET (5:30 pm BST) along with its rate decision (fed funds will remain below 0.25%). FED's economic projections are due at 2:00 pm ET and the press conference will start at 2:15 ET pm.

An extension of the ending operation twist seems to be the most likely outcome. Equity markets could be disappointed as this would not be an outright QE but the USD could still weaken as markets could, in light of recent data deterioration, still expect new QE in the coming months.

WE DO NOT AGREE WITH THE LATEST POLL BY the Securities Industry & Financial Markets Association (SIFMA) showing 65% of respondents expecting QE3 to be announced in todays meeting, with 17% expecting Operation Twist to be announced today to go into effect later this summer. If anything, we expect the extension of Operation Twist o be announced todaym, to go into effect mid-summer until September or October.

After the end of the session, market will focus on the release of New Zealand Q1 GDP at 6:45 pm that is expected to rise 0.4% from 0.3% q/q but slow to 1.3% from 1.8% y/y.

The 2nd of AUDUSD longs hit all targets, while the 2nd of GBPUSD longs is 5 pips away from hitting all targets. 1 gold long was stopped out while the other remains in progress. USDCAD long now filled and in progress. Both EURUSD longs & Crude longs were stopped out. For direct Access to these trades, click here: Non subscribers can join in here:


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