As expected that Bank of England voted to keep rates on hold at 0.5%. Whilst low expectations saw the pound drop to a fresh year to date nadir prior to the BoE rate decision, an unexpected hawkish change to the vote split bolstered the pound over 1% higher. The vote split at the Bank of England was 6-3 vs. 7-2 in May, with 6 members voting to keep rates steady and 3 voting to hike.
In addition to the usual suspects, known hawks Ian McCafferty and Michael Saunders was a surprise vote from BoE Chief Economist Andy Haldane. Furthermore, the central bank also suggested that they could start to sell its government bonds sooner than initially planned, meaning that not only was the vote split more hawkish, but the minutes also had a more hawkish tone.
Pound bulls didn’t need to be told twice and grabbed the opportunity to drag sterling off 7-month lows with expectations of an August rate hike revived.
The pound surged through $1.32 and is targeting $1.33 yet further gains could be limited. Whilst the BoE are clearly keen to hike, they haven’t offered any firm signal or commitment that they will do so, instead leaving it once again in the hands of the data.
The tone of the meeting shows the BoE are wanting to hike should the data allow it. We therefore expect to see more volatility than usual surrounding high impacting data releases across the start of the summer; July which can often be a quiet month on the markets promises a bit more action this year.
OPEC in view
The stronger pound was doing little to help the FTSE, which along with other global equity indices traded firmly lower to a backdrop of rising tensions in the oil markets.
With oil ministers from OPEC plus meeting in Vienna to review the current oil production agreement traders are aware that reaching a consensus will be challenging. After 18 months of propping up prices leading to oil trading at 3 ½ year highs and the global oil glut under control, the chances of the market over heating are looking more likely than not.
The market is widely expecting some sort of deal to be struck, most likely a scaling up in production. Should for whatever reason no deal be agreed we can expect the price of oil to rally. Similarly, should no the group agree on increasing production to sharply, above the 600,000 – 800,000 bpd circulating then the price of oil could fall away quickly.
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