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Market overview

Yesterday the MPC kept policy on hold, with the Bank rate held at 0.25% and the level of QE at £435bn, as expected. The vote on interest rates was 6-2, with McCafferty and Saunders continuing to vote for a 25bp hike in rates; the vote in June was 5-3, but Kristin Forbes has since departed the committee. The vote to maintain the level of QE was unanimous at 8-0, whilst the other policy decision taken at yesterday’s meeting was to end the Term Funding Scheme drawdown period (TFS) in February 2018 as initially planned, rather than extend it. The vote on this was also a unanimous 8-0. The BoE August Inflation Report was published at the same time and if anything presented a slightly more dovish picture than in May, with the medium term growth, inflation and wage projections pushed down, leading markets and sterling in particular, to view the report in a dovish light. Note though that Governor Carney was keen to emphasise that it might be necessary to tighten more aggressively than the two 25 basis point hikes implied by the yield curve. The BoE appeared to be playing for time, pondering on some economic puzzles, before deciding in 2018 whether to raise rates.

The special counsel investigating claims of Russian election interference is reported to have empanelled a grand jury, implying the inquiry might be edging towards criminal charges, although grand juries are also used by prosecutors to issue subpoenas and get witness testimonies under oath. Reuters have reported that the jury has already issued subpoenas over the June 2016 meeting between Trump Jr, Jared Kushner and a Russian lawyer. Recall that in recent weeks President Trump has refused to rule out pardoning members of his family and friends in relation to this investigation. The S&P500 extended losses after the news that the investigation is not set to disappear anytime soon and indeed looks to be progressing; the index eventually ended the day 0.2% lower. 

The day ahead

Today caps off what has been a bumper week on the data front with the non-farm payroll release at 1.30pm today. We are expecting a bit of drop from last month’s number of 222k to 185k. With what has been a bad few weeks for the dollar it might well be interesting to see if a strong number will give the dollar a much needed boost going into the weekend.

Thought of the day

For those of you who are not aware, 4th August is International Beer Day! So if you were feeling guilty about having another beer this Friday, now you have an excuse. According to an L2 study in 2016, the top five most consumed beers in the UK were Budweiser, Guinness, Stella Artois, Heineken and Carlsberg. What do these beers have in common? None are British: they are American, Irish, Belgian, Dutch and Danish. Against G10 currencies the Pound has fallen roughly 16% since the UK’s Brexit vote. Thanks to this drop and rising inflation in the UK, sadly the British public will be paying higher prices for the beers that they enjoy drinking. On a more positive note, Sterling is sitting at year to date highs against the US Dollar and in fact it is trading at levels last seen in Sep 2016. If you wish to make the most of this move while it lasts, call the Investec Dealing team today to cover your exposure before you head off to enjoy your beer!

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