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Fundamental Morning Wrap: BoE in focus following cables snap

This morning´s institutional research shows a hive of attention being understandably shown to today´s double bill of the ECB and the BoE policy decisions. While naturally the ECB is a key event, due to Sterling´s recent plunge, most attention has been put on the BoE, with reports suggesting that Chancellor Osborne may follow Japan´s lead an hand the bank a new mandate in an attempt to kick start the economy. Elsewhere, the final BoJ meeting of the old guard took place last night with nothing of note coming out.

EUR

Derek Halpenny of BTMU notes that the ECB meeting will play a key role today in terms of risk events, and that a downward revision of growth forecasts cannot be discounted. However, on the subject of a rate cut, he believes that a view to June-July is more likely than in the present. Danske Bank analysts note that teh consensus view is for unchanged activity from the ECB and that EUR/USD is trading below 1.30 despite the resilience in equity market. Further, they adds that with spot at this juncture, they would expect to see a correction higher if the ECB, as expected, keep rates unchanged AND if Mr. Draghi does not indicate that rate cuts have been discussed.

Jim Reid of Deutsche Bank notes in house expectations of non standard easing measures from the ECB in the coming months, perhaps in the form of ´credit easing´ liquidity policies. he adds that since last month, certain financial conditions have eased including the EUR which is off its highs and also a second wave of LTRO repayments which were lower than forecast. Kit Juckes of SoGen notes that Draghi has led the market on a merry dance in recent months, but ultimately is expecting a neutral/slightly dovish bias, with similar views on EUR/USD.

GBP

Derek Halpenny of BTMU feels that the BoE meeting holds the greatest potential for activity today, amidst high profile reports that Chancellor Osborne is set to hand the BoE more powers to kickstart the UK economy, much like in Japan. Danske Bank analysts note consensus expectations of no change at the BoE but not that notably GBP is beginning to trade on its own, indicating that markets are increasingly pricing the probability of a bigger shift in UK monetary policy. Jim Reid of Deutsche Bank is expecting no change in BoE policy but there is a lot of inbuilt risk in carrying this view as the previous decision was extremely tight. He too, highlights suggestions that the Bank may be handed a new mandate from Chancellor Osborne. Kit Juckes of SocGen still maintains his medium term view of cable hitting 1.40.

JPY

Michael Hartnett of BAML feels that Japan, which he considers the “Last Great Reflection Trade”, is the latest equity market to experience successful reflation. He writes, “Even in Japan, the leadership story is shifting from exporters (which benefit from yen depreciation) to domestic demand plays on asset price reflation. Financials are now outperforming the export oriented Discretionary, Industrials and Tech sectors.” Gareth barry and Geoffrey Yu of UBS note that the BoJ issued no changes in the BoJ meeting last night as widely expected, a point highlighted too by Kit Juckes of SocGen. Barry and Yu continue to note that there was however some dissent with board member Shirai voting in favour of more aggressive action. Meanwhile Nomura strategists note that following economic developments, they have recalibrated their USD/JPY forecast to see the pair consolidate within the range of 90-95.

Macro

Win Thin of BBH has taken a look at what lies ahead for Venezuela following the death of Hugo Chavez. He notes that despite Chavez improving the bottom line for a great majority of his country, he leaves behind a bitterly divided nation and an economic mess. As such he recommends investors hold back on getting overly bullish as “Chavismo” remains alive and well for now.


Derek Halpenny of BTMU notes thats in the US Congress where the Continuing Appropriations resolution which effectively controls discretionary spending, was pushed back from 27th March to the end of the fiscal year, meaning that there will be no risk of the Government running out of money in the near term.Meanwhile, Michael Hartnett of BAML notes that the world is entering the early stages of a multi year Great Rotation, which is very positive for the US dollar and US banks. In particular, he favours a long view on US banks and short Canadian banks.

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