After our Spring alert that the UK real sector would blow through expectations (the result) and then more recent alerts that there were still more “surprises” yet to come (the result) one would think that observers have about caught on, changed their tired models. Not likely. Thus, the clear risk for key releases just ahead is for something more, not less than is now priced in.
Yet Mr. Carney fears a “false dawn.” That may be but we are interested in FI price change over the near to intermediate term. We are not investors. Thus, we have a central bank which will remain generous over the near term, we have a real sector with exhibits “surprising strength” day in and day out, and, we have elevated price reads which are not about to plummet. This is the recipe for weaker debt prices just ahead.
Finally, Mr. Carney may well hint or actually deliver more QE in an attempt to dampen longer rates. He may do this because despite what one reads in the financial press he is in fact concerned that higher rates may well act as a retardant; and so, he may increase QE. But if he does, it will be by just a tad, not a wallop. “Just a tad” will backfire and gilts will erode further, not strengthen. That is the way things work in the real word.
Robert Craven
Yet Mr. Carney fears a “false dawn.” That may be but we are interested in FI price change over the near to intermediate term. We are not investors. Thus, we have a central bank which will remain generous over the near term, we have a real sector with exhibits “surprising strength” day in and day out, and, we have elevated price reads which are not about to plummet. This is the recipe for weaker debt prices just ahead.
Finally, Mr. Carney may well hint or actually deliver more QE in an attempt to dampen longer rates. He may do this because despite what one reads in the financial press he is in fact concerned that higher rates may well act as a retardant; and so, he may increase QE. But if he does, it will be by just a tad, not a wallop. “Just a tad” will backfire and gilts will erode further, not strengthen. That is the way things work in the real word.
Robert Craven
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