Deflation still a part of the system; BoJ and ECB

Marcus Ashworth, Head of Fixed Income at Haitong Securities, joined Nick Batsford on the Tip TV Finance Show to provide an outlook on central banks, covering the Fed, the ECB, the Bank of England, the BoJ and the PBoC.

https://www.youtube.com/watch?v=TXc4OMwfGfE

Markets surprised by deposit rate cut potential

Ashworth outlined that CPI from Europe on Thursday is important and it is likely to effect the ECB policy going forward. He continued that there has to be movement in December, and he believed the ECB are most likely to extend QE past September 2016 and unlikely to go ahead with the mentioned deposit rate cuts which would be much more drastic. Ashworth concluded that as long as the Fed continues to postpone movement, Draghi and Europe are facing increased pressure in order to keep the EUR down.

PBoC like to surprise

Ashworth commented that it was obvious the People’s Bank of China were going to cut interest rates at some point, and although it wasn’t a surprise, he noted that the timing was interesting following weak October data. He added that China hasn’t moved towards QE yet, but if they need to, it is a possibility for the PBoC.

Gap between the BoE and the Fed shortening

Ashworth outlined that Carney is still waiting for the Fed to move, but with UK retail sales and wage inflation stronger than the US, he believed that the gap is certainly closing between the two central banks. He finished by noting that the Fed continues to do nothing, however, if the ECB and BoJ continue on a path of QE, a Fed hike would be beneficial for global growth and would also undermine the Euro through policy divergence.

What next for the BoJ?

Ashworth highlighted the policy review on Friday from the Bank of Japan, and he believed this will be interesting but they will probably hold off from more easing until December.

Little/No room left for Fed hawks, SNB and BoJ under pressure

Batsford outlined FX Street, who noted that USD rally is indirect tightening, meanwhile, the GBP/JPY and GBP/CHF appear attractive and Gold could rise in Asian currency terms.