**BoE LIVE** 4th November 2021

Okay, testing, one, two. So as per usual, give it a few minutes to get everyone on board. And then we'll look to kick off. All right, Mr. Minaj James, hope you're doing well. Thanks for joining me. We'll give it a minute and then we'll have a bit of a chat about the Bank of England coming up momentarily. Gumbi, how's it going? I'm gonna go with the short part of your name rather than the long part, I'm afraid. Where are you guys tuning in from? Always nice to know where people are. And what do you guys think about the Bank of England? I guess just straightforward, are they gonna hike? Are are they not going to hike? So let's, let's have your answers in the chat if you're— if you can just access it below or on the right depending on where you're watching this. Um, type in the chat if you think the Bank of England going to hike, hike or no hike. What do we reckon? And then we'll give it a minute and then we'll kick off, have a bit of a chat and look at the chart. Robert, Scotland, good to have you tuned in. Mamour, my man, how's it going? No hike. Yeah, I'm your— I'm in your camp. Let's see. Okay, we've got a few other answers in. Robert, don't think they'll hike. Uh, tazutswa, no hike. Good morning from Trinidad and Tobago. I'd rather be there than here in the UK at the moment. Okay, CA going for a hike. So Ganesh, hike. So 50/50 here, you guys pretty much reflecting what the market or how economists at least are split. All right, let's, um, let's get to it. Let's have a bit of a chat first about the general setup of the charts and how things reside at this moment in time. So here's a quick look at where we left things. Hopefully you would have caught the briefing this morning and, and just a bit of an update from the Fed and so on. Not a great deal has changed, to be quite frank, in terms of— first off, starting with the equity markets. You can see here equity index futures just pretty much tracking as they were. Got a bit of a consolidation just happening at these elevated record high levels in the likes of the NASDAQ. The S&P, of course, looking very similar here. So the surge that we had last night post-Fed, and we just sat here up and around those higher bound levels at the moment. Currency markets, kind of a wait and see, I guess, now for the Bank of England for short term, the sterling currency to, to take, take the lead, at least momentarily. Otherwise, probably then more beyond today, reverting back to dollar dynamics to really lead these currency pairs. And then elsewhere, oil's had a pretty decent recovery but did come after the biggest kind of 2-month rollover in prices that we had yesterday. Um, again, with the OPEC meeting, there's been a few murmurings. The one, again, as per the briefing, I think unsurprising: OPEC+ likely to stick to plans to raise output by 400,000 barrels per day despite calls from the US for extra supply. And I'm sure I saw some comments earlier this morning, the US were kind of pushing for things like 600K to 800K. The US are not going to get that. But as I explained at the time in the briefing, this is about American optics to manage high prices at the pump, and OPEC are not going to listen. So yeah, decent reverse with oil, quite an aggressive bid really from the open. Um, we're back trading at 82 firm handle, up just shy of $2 at the moment. So Just having a look at cable and how that sits at the moment. We'll, we'll talk about some of the potential scenarios here first, and then we'll have a look at, um, the actual price targets that we could look at under bullish or hawkish and dovish scenarios. But I guess you've got to look at this a little bit on a daily to get a bit of a sense of the context of sterling movement of late. And you can see it was only back late September that we were trading down at 1.34. Pretty decent recovery though through the early part in the month of October before some slight moderation in price that we've had of late. So definitely on the downside levels here on the daily chart, 1.3573, looking at Sterling futures here, would be an area to keep an eye on. Those previous lows that were seen mid-October and also was the low that was seen in the summer in July as well. Beyond that point, 134 is the, the more obvious target beyond the 135 push under what would be more dovish outcomes today. And on the reversal of that, then looking back up to, to the moves up towards that trend line from some of the price peaks that we've had over the last few months. Let's have a look at this from a fundamental perspective. And just to recap, kind of breakdown here really is to do with The idea of the market has priced in, um, rate hikes from the Bank of England very aggressively. And the real reason for this is that inflation has been higher than expected. There's been opportunities from very senior influential members of the Bank of England's Monetary Policy Committee, namely Governor Bailey, to push back against that last week, and he chose not to. You've also had the chief economist who also came out and said inflation could rise as high as 5%, which would be indicative then of being much more hawkish, and so therefore supportive, as economists and analysts would believe, to siding with more immediate need for action and raising rates. So that's the context, very much inflation-driven to support that argument. But on the flip side To counteract that has been a lack of clarity of really having a definitive idea of what the labour market looks like with the conclusion of furlough, which, with which that data to reflect that end of the program, it's not going to really be known for another 2 weeks or so. And so therefore being blind to the potential of, is that going to lead to an uptick, let's say, in the unemployed, and of what balance then is inflation and the labor market, which is kind of one of the things that journalists were asking Powell last night. And so is it better that they just hold fire and wait? Now, one of the things here to support to pull the trigger now is that today we get the latest monetary policy report. And if you all know, that comes out in February, May, August, and November. And these are when in every alternate meeting on those months, the Bank of England unveil their outlook for inflation and growth. And that allows the markets then to have a kind of indicative idea of where the rate cycle will be in the medium-term horizon, i.e., 2 years. And so historically, the precedences, the Bank of England likes to act when there's more transparency of their thinking. And this also then is accompanied by a press conference with Bailey as he addresses questions. And so in history, these are moments when they release these reports, these forecasts, that they tend to move. And so this is what's dividing the belief about what the outcome could be today. One of the things that I think definitely to be aware of is this isn't just about hike or no hike. That will certainly dictate the initial reaction effect, I think, that you see in sterling. And certainly from a vote composition, how exacerbated that move looks, whether hawkish sterling up hike and also the opposite vice versa, will first off be determined by do they do it and what is the vote split. Obviously the most dramatic hawkish being 9-0, they all vote to hike, which is highly unlikely because the members on the left, the ones who are kind of known as the, quite clearly as doves, are very unlikely to back that kind of move. So probably the most extreme hawkish vote split would be something more akin to 6-3, for example. However, even that in itself could flip on the other side and it could be 6-3 to hold, but One would say that that's an unlikely outcome given the fact that Saunders and Ramsden are outlying hawks, have called before to end QE. The comment on inflation by the chief economist Hugh Pill and the lack of pushback from Governor Andrew Bailey means that really, if they are going to hold, it will probably be more like a 5-4 split, one would think. So as I said this morning, a lot of the balance lying with Cunliffe and Broadbent, who sit a little bit more neutral stance. If they do hike though, one thing to be mindful of is what does the shape of their inflation expectations look like over their forecasted period. One of the things to reiterate we heard from the HSBC this morning is whatever they decide with interest rates, they suspect essentially that they Bank of England will at least push back a little against the extent of the tightening of market positioning for rate hikes that has occurred in recent weeks. And so what that could look like is a less aggressive rate, uh, inflation trajectory and a more faster return to somewhat akin to, um, more normal toward target direction would be then the idea that it's a kind of strategy of hiking to counter the short-term challenges that are being met by the inflationary conditions at the moment. And so that's going to be the secondary key that will be quite key. There's obviously the minutes as well, and then the press conference half an hour later from Bailey, when it's going to be very important to understand in his description around these matters, of course. Um, all right, go back to the Um, we'll obviously tune in. The Squawk guys will do the normal shout. Just having a look. Good to have, um, a couple of you in the chat. Just looking more short-term on a 30-minute bar. Yeah, you've got the the kind of double bottom to the price activity that was seen yesterday afternoon and in the overnight or early part of the European open this morning. Anything beyond there starts to bring into play the lows that were seen back on the 12th of October. So any more dovish outcome— you've also got the S1 sitting just around that same level— dovish outcome would be no hike, more leaning heavy balance towards the vote split being indicative of I guess a, a 6-4 or 6-3 or even 7-2 leaning. If it's a 7-2 leaning of no vote, then the immediate reaction one would think would be quite aggressive downside here in the sterling currency, busting through the lows yesterday, and a quick shift through 36 down towards that S1 level, um, wouldn't be that unsurprising. Then it's about the subsequent commentary that comes thereafter. All right, I'm going to put the squawk on. Let's have a listen in. I'll keep the sterling chart visible.

So just a moment now on the rate decision. Again, I'll lead to the rates whereby Survey Analysts expected unchanged at 0.1%. Just to recap one more time, markets are fully pricing in a 15 basis point increase here. I'll then move on to the vote splits, the asset purchase decision, and then I'll cover any commentary from the statement, the minutes, and the monetary policy report.

Yeah, so remember, as you said there, the market's fully priced for a hike. So no hike, we'll see a big move downward in the initial reaction. A hike, it'll be a more moderated upside move on confirmation, but then it's about the subsequent comments. Thereafter. Okay, the cable chart's on the screen now. 10 seconds.

Unchanged. That's unchanged at 0.1%, and that was a 7-2 vote split. That's unchanged at 0.1%, and that is a 7-2 vote split there. Asset Purchase Facility, that's been left unchanged as expected. So the BoE says it will be necessary to raise the bank rate over the coming months if data, especially jobs, is in line with forecasts. The MPC still sees value in waiting for official labor market data after the end of furlough before deciding on tightening policy. So the Bank of England here, they're using the labor market as justification for unchanged. To bear in mind, a lot of commentary ahead of this have focused on inflation, but the Bank of England now pivoting towards the labor market. In terms of the vote split for gilt purchases, that was 6-3, so there's an extra dissenter here. So it does appear that Mann has now joined Ramsden and Saunders in dissenting. In terms of those who dissented on the rate decision, unsurprisingly, that was Ramsden and Saunders. They descended on both accounts there. And in terms of other commentary, they noticed supply chain bottlenecks and signs of weaker consumer demand have lowered near-term growth outlook since August.

Right, I'm gonna, I'm gonna turn him off. So just having a quick look then. Yeah, immediate downside in cable, so bound to those levels we were saying at the S1 and those previous lows we were having a look at. So again, no change. This was priced in for a hike, so hence the move lower. Plus the vote split was 7-2. So people like Bailey and like the chief economist, they're full of BS, basically. They, they did— they didn't push back, which would be to be taken as if they would be supportive of a hike. And now it looks like they're leaning more on the labor market conditions around the furlough side of things. And so Yeah, the, the split. Remember we were just talking about that 7-2. So Saunders and Ramsden, I can only imagine with the two that went for the actual, um, well, I'm just looking here actually, the, the headline tape that I'm seeing, uh, yeah, 7-2 is what some people— someone's printed 6-3, but it looks like it is 7-2. So one would imagine it's again Ramsden, Saunders. But Pugh, Pill, Bailey, and then Broadbent, Cunliffe, the risks, all standing pat. And I think that makes sense. Hence the rationale, what I thought it was going to be unchanged, is that, you know, this isn't the time for taking, you know, guesses about the labor market. Just wait. I don't think a 15 basis point rate hike would have really have made a great deal of difference, to be honest. So yeah, let's just have a look at some of the subsequent commentary. They said it would be necessary to raise bank rate over the coming months if, if data, especially jobs, is in line with market. The asset purchase facility is what was voted as a 6-3 split, just so you're aware. So the rate to be maintained at 0.172, the QE split was 6-3. Uh, the Bank of England said these effects are likely to continue pushing inflation up in the coming months. We expect inflation to rise at around 5% in the spring next year, but expect these high rates of inflation to be temporary. Sounds very familiar to Jerome Powell last night when he was talking about the whole idea of transitory and, and so on. Um, the other things that they've said: upward pressure on CPI to dissipate over time. So again, starting on the dovish side, growth outlook has weakened, no, since August on supply issues. Sees UK economy returning to pre-COVID size in Q1 2022, and they see the monthly inflation peaking around 5% in April of 2022. Okay, so yeah, I mean, that's pretty much it for the minute. What I'm going to do is I'll stay on for another 1 or 2 minutes, but I'm not going to stay on for the full press conference. I'll leave you guys to that. To tackle on your own. But if there's any questions at all, let me know. Don't forget as well, I have mentioned this before, but feel free to— I know many of you are regular names that I see in these feeds, but just as a heads up, don't forget to check out— you can follow me on Twitter for my daily notes, and then AmplifyMe.com if you're a student. Just check out that webpage, some cool stuff that you for sure be interested in. in regards to simulations that you can take part in that don't cost you anything, and certainly can give you an idea better of the types of roles in finance in practical terms. And there's a content hub you can access there as well that might be of interest to you. But yeah, I really came on to see if there was going to be, um, any surprises. I guess this is a kind of a surprise in a way against market consensus, more broadly speaking. Which was for a hike, and that has not materialized. So therefore sterling, to make sense, has weakened against that market expectation. Um, further levels to the downside if that were to continue, um, you've got 1.3544, which is that low you can see down here in the left-hand corner on the 6th of October. I guess from here it really depends on the press conference that now follows. But overall, I mean, they've talked about UK growth being a little bit softer. They've talked about inflation is going to go up, it's going to peak around 5% in April, but overall they see it dissipating over time. And so with that, again, this whole idea of the, the current challenges being fairly short-term, not constituting the immediate rate hike that the markets had been looking at. For the press conference, My only advice with the press conference really is about looking out for more clarity and detail around this idea of how the markets are priced. He's probably going to ask— be asked by journalists, does he feel— this is Governor Bailey— does he feel that that's correct? Is that type of rate hike anticipation warranted for how they see things at the moment? And any movement on that could cause further subsequent reaction effects. But This was one of the things that you remember I was saying about HSBC, this idea of irrespective of the rate hike or no hike, it's the idea of do the Bank of England look to push back a little bit and moderate the overextension of market pricing for really aggressive rate hikes, which is something I was talking about in the briefing this morning and of which I think that this is and that they will. So, yeah. All right, thanks very much, guys. Gonna wrap it up there. Milan, great to see you getting involved as well. I hope your algo managed to get hold of the, the announcement. And thanks, guys. I'll see you tomorrow for Nonfarm