ROHR COMMENTARY Excerpt for MyTradingBuddy – BoE
Thursday, August 6, 2015
‘Super Thursday’ was a big success for the Bank of England. Before any specifics I note that continued economic weakness is killing the many ‘Bond Cassandras’, and for the very reasons that were outlined in the BoE Thursday’s Inflation Report and press conference: the global economy is experiencing repeated rounds of residual weakness instead of any real strength.
While many (other than this analyst) have called for immediate central bank rate hikes and warned of the risks to those holding bonds, broad global conditions just do not support that view. With the next US Employment report due on Friday, this is also an exercise in placing my neck squarely in the proverbial noose. Speaking of proverbial context, the bond market is now entitled to invoke the classic Samuel Clemens (aka Mark Twain) observation after he was mistaken for a very ill cousin, “The report of my death was an exaggeration.”
At this point my consistent nominally friendly view of government bonds (shared by more than a few others) still seems warranted. And the BoE Inflation Report and extended discussion of near term factors at today’s BoE press conference continue to caution against assumptions of too much short-term inflation or the need for rate hikes.
As for the successful change of form for the Old Lady of Threadneedle Street, it has been my view for some time that central bankers have gone from inscrutable to insufferable (and the US this week was a great example.) That said, it was the case that the BoE’s previous process for rate announcements, the meeting minutes release and the Inflation Report release having the only press conference was indeed prone to creating undue speculation over its views, and the path of future rate adjustments.
Following through on his success in instituting post-rate decision press conferences at the Bank of Canada, Mark Carney and the BoE board has done away with all that. While some would consider it an extreme adjustment, it was decided not to micro-adjust this process. As of today, Bank of England rate decisions which occur at the time of the Inflation Report release will be accompanied by immediate release of the minutes.
That naturally includes disclosure of specifics of the rate decision vote along with the Inflation Report, followed by the Inflation Report press conference. The latter obviously becomes the post-rate decision press conference, even if it is still designated as being attendant to the Inflation Report. And it seems to have been a great success. In central banker terms success is often measured by how little the markets react to any surprises. In other words, was everything well-telegraphed?
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