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Daily Briefing: "A bit tricky" - Broadbent, Brexit, rates
July 12, 2017 / 7:24 AM / a month ago

Daily Briefing: "A bit tricky" - Broadbent, Brexit, rates

Deputy Governor of the Bank of England Ben Broadbent speaks at a Reuters Newsmaker event at Canary Wharf in London, Britain, November 18, 2015.Neil Hall/File Photo

LONDON (Reuters) - Bank of England deputy governor Ben Broadbent has said he is not ready to vote for a raise in interest rates just yet, pushing sterling lower.

For Broadbent it is "a bit tricky" to make a call on that now given the imponderables related to Brexit, including further down the line the risk of a hit to the economy from reduced trade. This would militate against any MPC decision on Aug. 3 to raise rates for the first time in the decade - although hawks will be on the look-out for any sign of stronger wages growth in labour date due today.

Moody's picks up the Brexit refrain by warning that UK creditworthiness is under pressure from it, arguing that the risk of Britain crashing out of the bloc without a trade deal has if anything increased since Theresa May's election gamble backfired - something of a reality-check for those hoping that her weaker position will lead to softer Brexit.

The leaders of six Western Balkan countries meet in Trieste under a European Union-led drive to create a Balkan common market. The EU wants the outlines of a deal agreed in the northern Italian city, but some of the six are resisting, seeing the project as a distraction from the already slow process of EU accession.

EU officials are telling journalists that European Economics Commissioner Pierre Moscovici is likely to make a statement on Greece at 1300 GMT. Some media reports say he will announce that Athens is no longer subject to the EU's so-called excessive deficit procedure, the process by which it brings into line countries who borrow more than they should under euro zone rules.

MARKETS

Not for the first time this year, what appeared to be a major political twist has been greeted with a collective shrug in financial markets. The release of emails detailing pre-election meetings between Donald Trump’s son, the U.S. President’s election team and a Russian lawyer promising information damaging to Democrat candidate Hillary Clinton caused a very brief flurry on markets on Tuesday but no more.

The S&P500 closed virtually unchanged, the Vix volatility gauge fell below 11 percent and slight losses in Treasury yields and the dollar were more down to relatively dovish comments on monetary policy from Federal Reserve board member Brainard.

While there’s some debate about whether Trump Jr.’s emails increase the pressure on the President amid extensive probes into the team’s Russian links, the lack of any sustained price impact shows how much Trump’s promised economic agenda has already been priced out of markets. And it also shows the extent to which political ‘noise’ is being faded out while more immediate concerns play out.

In that regard, Fed chair Yellen’s congressional testimony later today looms large – no change to the existing Fed policy course is expected to be signalled, but any nuance about how the central bank is viewing this year’s retreat in inflation will be hypersensitive. Interest rate futures markets now ascribe less than a 50 percent chance of another Fed rate rise by year-end.

U.S. stock futures, meantime, are pointing to marginal losses on Wednesday at this early stage and Asia bourses were mixed overnight. A firmer yen hit the Nikkei225 and Shanghai and Seoul stocks were in the red, but HK and Jakarta bourses were higher and European stocks were marked higher too.

The big mover over the past 24 hours was sterling, which hit a two-week low against the dollar and its lowest in eight months against the euro after Bank of England Deputy Governor Ben Broadbent said he was not yet ready to raise interest rates. As a swing voter on the BoE’s monetary policy committee, Broadbent’s cautious stance could be crucial in staving off a UK rate rise this year.

UK jobless and earnings data out later today will be a critical input to the thinking as sub-inflation wage growth has been one of the biggest policy dilemmas.

The other mover was oil prices, and Brent crude has rallied back above $48.

Canada’s dollar was slightly higher  as investors awaited a possible Bank of Canada interest rate hike later on Wednesday.

Editing by Toby Chopra

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