Could we still get a ‘Super Thursday’ from the BoE?
It’s been a relatively calm start to trading in Europe on Thursday but that may change in the coming hours with the UK very much at the heart of it.
‘Super Thursday’ has very much fallen off the radar this time around, which is hardly surprising when you consider that the country is less than two months from exiting the European Union and there’s no agreement in place. While the interest rate announcement and everything that comes with it may not be the knockout event that is has been in the past – and will in the future – there is still a lot to be gained from it and the markets may be very sensitive to what comes.
We may not currently know what shape Brexit will take at the end of March but people are becoming increasingly confident that no deal will be avoided and an agreement – perhaps after an extension – will come, meaning the bank’s base case of a smooth and orderly exit materialises. So its forecasts and rate expectations may be open to change depending on the outcome but they may not be too far from the reality so we should pay close attention to their current views. Most notably, how the global slowdown and dovish shift of others influences their own projections and whether they think the UK could buck the trend if a backlog of investment and consumer spending is unleashed in the event of a deal, which could mean more interest rate hikes than others are currently planning.
How will May’s ‘alternative arrangements’ go down in Brussels?
Of course, it’s likely that Mark Carney and his colleagues will try to be dragged back into the Brexit debate during the press conference but this isn’t of much interest. It may make the headlines though alongside the Theresa May’s visit to Brussels which the Prime Minister will be hoping results in more MPs getting on board with her deal. That may be very optimistic unless she can convince Jean-Claude Juncker and Donald Tusk that the ‘alternative arrangements’ her working group have come up with are workable. They are unlikely to replace the backstop though as they have refused to reopen the Withdrawal Agreement but they could be entered alongside and provide enough assurance by MPs to get the deal over the line. Unfortunately, this process has never been that straightforward and I don’t expect it to start now. There’s still more to run yet.
Dollar rally continues putting $1,300 gold support under pressure
The rebound in the dollar appears to be gathering momentum which is weighing on gold and driving back towards $1,300, a level is broke above a couple of weeks ago. With the momentum that gold currently has, this could be a big test for gold bulls who have been very resilient until now. The declines yesterday indicated a slight softening in sentiment but the big test is $1,300.
Gold has already found support just above here this morning, prompting a small bounce in price, but if the dollar continues to push on it will likely come under pressure again. If this can hold and rotate higher, it would be a very bullish signal for gold, with this having been a major level of resistance for most of last month. A break below here on the other hand would present some near-term challenges, with $1,280 becoming the next area of support below.
Oil rally stalls around key resistance
The rally in oil has very much paused in recent weeks but bulls are not giving up that easily. Resistance around $55 and $65 in WTI and Brent, respectively, are proving to be more of a test than bullish traders may have hoped for but we’re seeing no signs of bearish momentum growing. A few factors are potentially causing the rally to stall, such as record US output figures, a series of inventory builds and questions around the speed of OPEC+ compliance but these may not last much longer.
OPEC+ has a history of delivering on promised cuts which have been effective in bringing down output and lifting prices, albeit not sustainably. US output is at record levels but the rig count has been headed in the wrong direction for a couple of months. Finally, Venezuela and Iran output is expected to decline which could aid the efforts of the OPEC+. Of course, much of the gains in oil has coincided with a similar rebound in equity markets and risk appetite, if that turns then regardless of these other factors, oil may tumble with it.
