**Bank of England LIVE** 23rd Sept 2021

Okay, testing 1, 2, just getting up and running. Hope everyone's doing well. Just going to set up a few of my screens and then we'll get going. Bank of England coming up, so Just bear with me, just want to be able to have the chat box visible so if anyone has any questions, obviously I could pick them up as we go. The intention here is to be on for about a half an hour session. We'll see how we go, and obviously happy to take questions as you guys see fit. But thank you very much for joining me. So yeah, Emilien, Harry, good morning. Late morning, I should say. Yeah, Bank of England coming up momentarily, and so we'll just give it a minute or so, then we'll do a bit of a rundown. Been some interesting news actually has just come out in regards to China Evergrande. Not sure how closely you guys are all tracking the news at the moment, but the Wall Street Journal just came out with an exclusive article just about half an hour ago or so, and it said that the headline, Journal Exclusive: China Makes Preparations for Evergrande Demise. Beijing Reluctant to Bail Out the Country's Most Heavily indebted property developer asking local offices across the country to prepare for a possible storm. We did actually see equity index futures just come off their best levels at around a similar timings to around when the article came out. You can see a bit more of extension on that wick here around 11 o'clock on the 30-minute bar where we've just moved a little lower. Still positive though in terms of the overall Index futures, both DAX up 138 and US futures, albeit well off their best levels, still up in positive territory for the time being. One thing I would say, whenever you get these types of quite sensational headlines in, you know, what is a very market-sensitive story, certainly this week in Evergrande, is just go on the article. And although this is locked because you have to have a paid member for the journal, there are a couple of things here that you can see. The officials characterized actions being ordered as getting ready for a possible storm. Hence, it was in the subtitle in the headline. They said that local government agencies and state-owned enterprises have been instructed to step in only at the last minute should Evergrande fail to meet its affairs in an orderly fashion. So in actuality, I think that, you know, this is sometimes what can catch people out from a headline trading perspective in an intraday environment, because you see a headline like that and obviously it sounds disastrous. The market generally reacts quite quickly because this is an unscheduled piece of information that comes out, it circulates, you get a bit of a move. But actually, when you read a little bit between the lines, I don't know, it doesn't sound quite as sensational as perhaps the headline. You know, in the end it is saying they'll step in, they're just not willing to step in unless it's absolutely necessary to do so. I don't think that's too untoward, to be fair. So nonetheless, I think equities obviously were fairly supported yesterday. US indices finished up pretty much across the board about 1% margin plus. We kind of pushed higher through the European morning as well. So a little bit of just profit taking from more elevated levels, I don't think is too unexpected. Just going to get the S&P chart here and have a look. From a technical perspective. Sorry, it keeps pulling full screen. Let me just put it here. So just having a quick look, the peak of kind of the recovery in price that we've had here, it's been quite nice from a technical perspective. You can see here back to last week, Tuesday, Wednesday area, and that was a kind of key inflection point, which then when we broke, people started to kind of really ratchet up the pressure on the Evergrande story was this sell-off here seen late Friday. Going into Monday session and a recovery since then. And we've had some nice respect yesterday initially when we came from the FOMC volatility of the 6182 fib from the sell-off from last week to the low of this week. And you can see there breaking above that this morning just gave a bit of momentum to the futures market. And then as I said, peaked out at 4425.25, which was those previous areas there of support resistance that you can see. So Market's just backing off a little, but in context, obviously, you know, from where we were the night before, combination of the Fed, combination of the PBOC stepping in with a large liquidity injection, combination of that with then some restructuring talks ongoing in China at the moment, as I covered in the briefing, has just kept things relatively buoyant. So a bit of a pullback here. I think that Journal article perhaps worth just keeping in mind when the US starts to come into market. More in volume later. But to be honest, the early birds in the US will already be in. So just a reason to take some profit, I think, on some of those short-term gains that have been seen in the equity space. But let's get to it. Let's talk about the matter at hand, which is 10 minutes— 9 minutes, in fact— to go until we get the Bank of England. I can see certainly there's some questions and stuff like that. What I'm going to do, I'll do a briefing. I'm kind of flying solo on this, So I'll do my best to just tackle that and then I'll pick up some questions at the end. So just to kind of go back to what are we looking at here and a few things to think about. So in terms of actual policy for the Bank of England, we're absolutely not expecting any change here. So in regards to the interest rate and the £895 billion QE program, the asset purchase facility, that's going to be unchanged. The things to keep an eye out for that are quite unique to the Bank of England, of course, is not only do we get the rate QE announcement, the statement. We also get the vote split. Uh, remember we're now fully stocked back to a normal regular number on these officials. So you can see 9 members here and the 2 newbies, uh, being Catherine Mann and Hugh Pill. Um, Mann, much more of a dovish disposition. Pill, not, um, not quite so much, but nowhere near as hawkish as say a Saunders. Last time on the vote split, we obviously saw a dissent from Saunders who wanted to stop QE straight away. Anticipation is that he will remain of that view. And so from the split perspective, 8-1 would be expected. 7-2, um, 2 being someone to join, perhaps Ramsden here on the right-hand side to join Saunders would temporarily cause probably a short-term pop in, in sterling currency, perhaps likewise in yields. But it really comes down then to the next part of the release, which is the minutes. So there's no, there's no forecasts. This isn't like the Fed, the FOMC last night where we get projections of dot plots and things like that. The version of that from the monetary policy report from the UK is not coming till the end of the, towards the end of the year in November. So all we're looking out for then is minutes, descriptions of how they see the economy playing out at the moment. And on that point, there's a couple of of different things. Generally, growth expectations have been pulled back a little bit in the UK. When they published their forecast back in their monetary policy report in August, essentially they're anticipating 2.9% expansion in, in Q3. But the latest Economist survey from banks on Wall Street would suggest that's probably been moderated down to something more in the region of 2.5%. So growth looking a little weaker than previously anticipated, and obviously that would go against more hawkish calls for immediate action on QE. On the flip side, inflation has outperformed. It's coming a little hotter, a little faster than people have thought, and obviously well above the Bank of England's 2% target. We're now tracking around 3.2% in the month of August. However, that in itself somewhat tamed by two things. One, the fact that the Bank of England have already said they foresee inflation going to 4%, so they've created themselves a bit of wiggle room here. And then secondly, the fact that they see then inflation pressures decreasing into 2022 and 2023, reflective of those kind of transitory nature of where the pressures are coming from. A few other points as well that will likely mean that the Bank of England remains possibly a little bit more sitting on their hands for the time being, and it's kind of 3 things to be aware of. One is there's still an awful lot of people, some 1.6 million, said to be still on furlough. Obviously that's coming up for expiration. Two, a £20 uplift in Universal Credit, which is basically welfare benefits, will end in a couple of weeks. And then three, we've already heard before, National Insurance changes, so paid for by employees and firms, that's going to be hiked from next April. So for these reasons as well, these could be somewhat impactful on the strength of the recovery that we could see going forward. A couple of notes here from analysts at ING that are probably worth covering. They said the effect of what I've just mentioned, those 3 points, is likely to be something of a cost of living spike this winter, particularly for lower earners who will be disproportionately affected, of course, by universal credit cuts. We're also going to be facing, because of the gas crisis at the moment, ever-increasing energy goods bills. and those items make up a large share of the spending of those who are on the kind of lower threshold of earnings capacity. And so hence the reason why probably it's too soon to be talking really too much of a hawkish game at this point in time. The one thing that I have read, a couple of people have mentioned, I'm just going to quickly bring it up. I was just sharing, um, uh, a tweet from a contact of ours, Viraj Patel, who is a macro strategist, former Bank of England, Barclays, ING. He had a great chat with some of our analysts over the summer, but he made a good point as well. And I think to be aware of subsequent potential market reaction, he said he struggles to see how the market gets even more hawkish than what's priced even after this week's volatility market has priced in more tightening. So surely risk-reward suggests fading the move, betting that things go wrong with the UK recovery. So just, just to make sense of that, for a market reaction function, what he's basically saying is markets, despite all of the somewhat reasons that I've presented here that would mean the Bank of England should just hold off for the time being on any idea of accelerated timing of tightening of policy, markets still are priced fairly aggressively for rate hikes to come next year in the UK. And so the risk is of betting— what he's saying is fading that, the better trade from a risk-reward perspective is fading that move. He's talking more medium term, of course, in that the recovery hits a couple of stumbles before it really gets underway that would warrant a rate hike. And so the market's a little ahead of itself. So yeah, if that is the case, then certainly from a reaction point of view, just having a look at cable— we've got 3 minutes to go, I'll have the squawk on when it comes out— but, um, we could then see sterling come under a bit of pressure if that type of situation does materialize, which talks a little bit more about kind of continuity, not, not really too much comment about reacting to inflation. It's still more transitory. Some, some concerns about wanting to just see how COVID plays out, how growth expectations materialize given that they've weakened slightly, those other threats to the economic recovery from universal credit, welfare benefit changes, NI tax increases, and the end of furlough. So yeah, let's, uh, let's see what gets said. From a technical perspective, this is Cable looking on a 30-minute candlestick. So, um, just having a look at the general range that we've been trading here over the course of the last week, there's obviously quite a clear upside area of resistance here at around 1.3692. I'm looking at the sterling futures chart here, the low down here. Any pop and break above that level and something the more hawkish, if that does materialize, I'd probably be marking up these levels here, which would be the high and low that you can see from Friday and Monday. and then Friday, Monday again on these reference points. Okay, going to put the Squawk on and I'll let the guys cover it. Just going to refresh and then, yeah, I'll take some questions after. So let's get everything ready. So I got the cable chart here. Cable futures. I'll just keep that up as a large chart at the moment.

So this moment now on the Bank of England rate decision, again rates expected unchanged at 0.1% with a 9-0 vote split. I'll then bring you the QE decision and vote split. There's often sometimes a bit of delay in bringing the votes a bit on QE. I'll then cover any pertinent comments. Let's keep an eye on events at the CBRT, but that rate is expected unchanged at 19%.

Yeah, just let me know whether you can hear the, the squawk okay. Just give me a why in the chat if possible.

10 seconds. That's unchanged at 0.1% as expected. And the QE, that's also been, um, held at 895. For a decision, that was a unanimous decision. And BofE says Bank of Scotland have revised down their expectations for the level of UK GDP in 2021 by around 1% since the August report. CPI inflation is expected to rise a further near-term to slightly above 4% in 2021. Largely to developments in energy and goods. The decision for the QE was 7-2, so 7-2 on gilts, was expected 8-1 with Saunders to be the lone dissenter. Just kind of look into this to see who else descended on this vote. Do you know, this has not yet been published on the Bank of England website, so still trying to get this report up. So it's Ramsden and Saunders who proposed a cut in the remit, with that cut to 875— sorry, from 875 to 840. So besides shallower cuts than what Saunders proposed last time.

All right, just going to turn them down for a moment. So yeah, the votes split, um, perhaps a little bit more on the hawkish side because Ramsden, uh, has joined Saunders. So the vote split on the QE decision was 7-2, on the rate 9-0, as you would expect. Some of the other comments of note: the Bank of England sees inflation set to rise slightly above 4% this year. And so Yeah, pretty, pretty tame move if you're actually looking at this because there's nothing really here that's a great deal surprising. Again, they're a long way off making any definitive changes here in regards to QE. A little bit more perhaps then seeing upside near-term inflationary pressures, but that's kind of reflective of what other central banks have done, similar to like the Fed last night in the FOMC projections, but they see them still being transitory and coming back thereafter. So, um, not too much reaction here, to be honest. That level had a brief threat, um, on that previous double top from the last two days trading session, but it's failed to really move on from there. And we're just trading exactly where we were prior to this coming out. So no shocks or surprises, I'm afraid, to bring you anything more exciting. Ramsden and Saunders proposed to cut uh, to 860 billion, and the current amount is 895 billion as a reference. Bank of England said considerable uncertainties remain, most cost pressures indicate remain elevated, some development strengthening case for modest tightening. Yeah, it's all fairly uninteresting, to be honest. I'll keep it running. I'll keep the feed running for just a short while, another 5 minutes or so. Yeah, the Bank of England said cost— global cost pressures likely to prove transitory. Um, so, so yeah, I wouldn't say this is necessarily um, hawkish, perhaps with the vote split that one's moving over. But all in all, um, the actual comments themselves, there's nothing really too committed. Everything's kind of pretty much in line with what you would anticipate. Some developments for strengthening case to modest tightening, sure. Generally things are improving, the tightening is coming in the future, but inflation still remains transitory. Inflation set to be above 4% a little bit this year, again tiny bit, but again it's because it's, it's caveated by being transitory. It hasn't had much sustained reaction to the upside for Sterling. Yeah, they're kind of saying that tightening is necessary but caveated by uncertainty still remaining. The actual quote from their, um, reports: intervening period appear to strengthen the case in regards to tightening, although considerable uncertainties remain. So yeah, if any hawkish signals there on the near-term inflation or the vote split counteracted by some of that general more dovish relative to market expectations is probably the way to to explain it. So yeah, otherwise, if anyone's got any questions— I'm not going to talk about the Bank of England anymore because nothing more to say. Such as these events, not all of them are a firework show, I'm afraid. Um, just as a reminder, um, as they always do— I know most of you who regularly tune in to us will already know— but feel free to follow me on Twitter for any kind of snippets that I put out, my morning call and things just during the day, bank commentary and so on. I also tweet, kind of aggregate the main articles to be aware of from the AmplifyMe official account. So that Twitter handle is there as well, definitely worth following that. I'm tweeting maybe anything from 10 to 15 articles of relevance a day, keep you informed and up to speed. 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And then also you'll get access to the Market Maker, which is a daily newsletter I put out. But if you just want to sign up for the newsletter, absolutely feel free to go ahead and do so. All right, a little bit of a bid coming through in Cable. I think really too outrageous. Again, we don't forget, even prior to this coming out, we were already trading up at around these levels. So all all in all, we're only within 10 pips higher than where we were prior to the morning. So yeah, nothing really too big a deal here from the Bank of England. All right, that's it, guys. So thanks for joining. Lady Jennifer, Sean, Neil Davidson, Alexandros, Billy the Kid. Do I think gas prices will push up UK CPI? Well, the Bank of England are saying that inflation is going to be a little bit higher, above 4%, which is a slight upward revision from what they previously said. So yeah, it might well do, but they've stuck to their guns that that will be transitory, and one would imagine that is the case. These, these gas prices are a function of the pandemic reopening pains to some extent, and so you would expect those to moderate over time, not remain. Consistent. Gavin, hope you're well. Um, someone's asking what time do I wake up. I don't get up as early as I used to in my, my former, former life when I used to work on a news analysis desk. I used to get up about 5, um, but I used to live very close to the office. When I didn't live so close, I used to get up at about half 4 in the morning Sounds early, but you get used to it. And, you know, I kind of liked being looking at the news first, being ahead of the game, ready to rock and roll before the open. So yeah, yeah, if you've just joined the channel, thanks for joining. Yeah, I hope you enjoyed the briefings as well. Any comments on those day to day, just let me know. Yeah, Germ Corp, in the good old days after the figures, in the pub for traders. Absolutely. Yeah, back in the good old prop days, for sure. You could, you could grab a pasty downstairs at Liverpool Street and then, then go to Jamie's, if you remember. All right, well, look, sterling just catching a bit of a bid now. So let's just have a look. Just gone through those previous levels there. That you can see. And then we just come up to 137.17. Now would be an upside target from that 17th, and I said Friday and Monday kind of support resistance area that I'd keep an eye on. Yeah, Antonio, don't worry, I'm not, I'm not even eating the pork pies. Um, as you can tell. All right, that's it guys, take care and I'll see you for the next live session. Sterling is remaining a little bit bid though for the moment, so I'd still be keeping half an eye on it at the moment.