Investors will momentarily have their attention diverted away from the circus that is the US presidential election, today, as Super Thursday in the UK shifts the focus back onto Brexit and the central banks response to it.
The Bank of England has already responded quickly and effectively to the vote, cutting interest rates to record lows in August and announcing a raft of other stimulus measures to try and relieve the initial panic and restore investor confidence, something that has thus far been quite successful. At the time, it also warned that further easing would be necessary this year should the economy perform in line with its expectations.
Since then, the UK economy has shown some early resilience and in areas like tourism and exports has actually benefited from the plunge in the pound. Unfortunately that is not expected to last so while we no longer expect any further stimulus from the BoE this year, additional support down the line is very likely, the only question is when.
This is what we’re hoping to learn today, when the BoE releases its quarterly inflation report, containing its latest growth and inflation forecasts, and Mark Carney holds the corresponding press conference. This comes just over 48 hours after confirming he will remain at the central bank through to 2019, after which point the Brexit process will hopefully be complete.
Assuming of course that Brexit firstly goes ahead – which it almost certainly will – and secondly that article 50 is triggered by March which today’s ruling by the UK High Court could complicate, if it deems that Brexit must be voted through parliament.
While focus will temporarily shift to the UK, with less than a week to go until the US election and the polls neck and neck, overall market sentiment may still continue to be primarily driven by the vote next Tuesday. Trump’s resurgence in the polls has been match by a similar resurgence in gold, a sell-off in equity markets – the S&P 500 has just recorded its first seven day losing streak in five years – and a near 2% decline in the US dollar Index.
The sell-off in equity markets has not been helped by sharp decline in oil to trade at a six week low driven by doubts over the OPEC output deal and the largest ever recorded inventory build last week.