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Last Week In The UK

Published 06/27/2018, 06:01 AM
Updated 07/09/2023, 06:31 AM

The 2-year UK treasury rose from the lowest level of the second quarter (around 60 bps) to above 70. Spread between 2- and 10-year treasuries fell to around 56 bps from the level of 70 and. To me this was more driven by nonmoving inflation expectations rather that expectations about bank rate hikes. Now the most interesting part. Last week we had super Thursday, and BOE decided to keep purchases and the bank rate at current levels. HOWEVER, in case of voting for the next hike we had 6 against and 3 for, whereas market expectation was 7 against and 2 for. So we have one more guy willing to increase the rates and this guy is the BOE chief economist Haldane, who dissented for the first time. Also, they might start unwinding their stock of assets after bank rate reaches 1.5%, rather than 2% expected previously. The probability of hike in August increased to 70% post-decision from 48% pre-decision. It is known that Carney steps down next summer, but he still has time for two more hikes. I wonder if Philip Hammond already receives CVs for the position of the governor of the Bank of England. According to The Guardian, “the former head of India’s central bank, Raghuram Rajan, and the ex-boss of Mexico’s central bank, Agustin Carstens, are in the frame”.

Last week we also had the “meaningful vote” on the Brexit deal Prime Minister May is advocating. At the beginning of the month, May was under pressure by the pro-EU Conservatives who claimed they were assured by May that they will have the right to veto “no deal” and then stepped back. Later, Dominic Grieve demanded an amendment as Theresa May breached the term of the verbal agreement. It is funny because Theresa May won again because Conservatives stepped back as only 6 Tories went against the prime minister. Even Dominic Grieve voted against the amendment. UK saw the second largest people movement after the Brexit referendum, demanding a vote on final Brexit deal. On June 29, it is expected to have a European Council meeting in Brussels. Ireland's border issue might be discussed. It is also an opportunity for both UK and EU to revise their negotiation positions.

Sterling fell to lowest level for this year before the meeting. Escalation in the trade conflict also impacts the GBP/USD. Trump threatens EU with tariffs to be imposed on cars imported from the Union. Pivots for this week are 1.3350 as resistance and 1.3137 as support. In my opinion, it has bigger potential for upward movement, rather than the opposite. GBP had a very quick depreciation and I expect correction up to 1.35.

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