Chart of the day: Rates markets are pricing...Rates markets are pricing in faster policy normalization for the BOE
With the Bank of England just a few days away, it’s always a good idea to reflect on the rates market and see what it’s pricing in.
Looking at the SONIA quarterly futures rates we can see that markets are pricing in much faster policy normalization for the UK compared to the likes of the FED. SONIA futures are pricing in a first hike from the BOE by SEP 2022 (compared to March 2023 for the FED), and a total of 3 hikes (assuming 10bsp each) by March 2023.
How does this information help us? It is helpful as it shows us a bit of a disconnect between the recent weaker price action, we’ve seen in sterling versus what the rates markets are implying for policy normalization.
Thus, even though a lot of policy normalization expectations are baked into the rates market, the same is not reflected in sterling’s price action just yet.
For now, consensus is not expecting the BOE to follow, the BOC’s lead by tapering asset purchases. But arguably the bigger focus will fall on the BOE’s rate hike projections.
Sonia
Heads Up...Tax Cuts Coming In UK !!!Important updates on the UK side for those in UK related assets. A game changer cabinet reshuffle to put a 🍒 picked “Yes man” in the Treasury. Downing Street making renovations and now in full control of not only No.10 but also No.11 (and scarily soon to be the BOE next month).
Sunak will turn the fiscal taps on full blast, the fuel behind fiscal stimulus will come from fresh tax cuts in the UK ...Clean and simple legs available in the 2s10s, as markets begin to expect a looser fiscal policy a test of the Nov highs are in play.
We will need to update the GBP macro charts over the coming sessions once we have confirmation in the headlines. Remember inversions in the US 2s5s setting the stage for recession...
We traded the inversion here live in the UK:
In any case, plenty of opportunities to discuss and in single stocks too. Smelling a major hammer to the UK economy coming at the end of 2020. As usual thanks for keeping the support coming with likes, comment and etc!
