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    IronFX Daily Commentary | Bank of England unanimously on hold | 05/02/2016

    05.02.2016, 10am

    • Bank of England unanimously on hold On its first “Super Thursday” of the year, the Bank of England kept its benchmark interest rate unchanged. However, the vote of the MPC members was changed to a unanimous 9-0, as the previously lone dissenter Ian McCafferty dropped his vote for a rate hike. In the meeting statement, officials noted that the next move in rates is likely to be a hike, but when rates begin to rise they are expected to do so more gradually and to a lower level than previous cycles. The MPC also noted that it expects CPI inflation to remain below 1% until the end of the year and that the risks to that outlook remain to the downside. In the quarterly Inflation Report, the Bank revised down its 2016 GDP forecast to 2.2% from 2.5% in November. Inflation expectations were also revised down as a result of the recent fall in commodity prices, while wage growth was downgraded, with officials quoting persistent low inflation and the increase in population as the main factors. The pound traded in a rollercoaster mode at the time of the releases, but slid in the following hours. Given the Bank’s dovish rhetoric, we could see sterling to continue south and erase some of its recent gains.

    • Overnight: RBA upbeat despite global risks Overnight, the RBA released its quarterly Monetary Policy Statement, where it published updated forecasts on Australia’s economy. The Bank kept its 2016 GDP growth forecast unchanged, but revised somewhat down expectations for the 2017 growth rate. The inflation rate was trimmed for both 2016 and 2017, while the unemployment rate is expected to improve more than previously estimated. Although the Bank left the door open for further easing at its latest policy meeting, the degree to which the forecasts were revised down was not as large as investors were expecting. However, the RBA reiterated the risks that global developments, particularly China’s outlook, pose to the Australian economy and showed its preference to a weaker Aussie, something that could support domestic economic conditions. We remain bearish o AUD/USD and we would treat its recent recovery as providing renewed selling opportunities.

    • Highlight of the day: US employment report for January The market forecast is for nonfarm payrolls to increase 190k, down from the solid 292k print in December. Moreover, the unemployment rate is expected to have remained unchanged at 5.0%, while average hourly earnings are forecast to have accelerated on a monthly basis after staying flat in December. Although an unreliable predictor of the NFP number, the ADP report exceeded expectations by 10k, which increases the probability for a positive surprise in the NFP figure as well. The labor market tightened considerably last year and this was one of the main reasons the Fed raised interest rates in December. Another solid employment report could bring forward some expectations for a Fed hike in March and cause the dollar to recover some of its recent losses. However, we should keep in our mind that during the week Fed officials Fischer and Dudley have said that the impact of the global slowdown on the US economy is a factor the FOMC will consider when it meets in March. So, it appears a bit doubtful to us whether further improvement in the labor data would be enough for the Fed to pull the trigger. The US trade balance for December is also coming out.

    • Elsewhere, Germany’s factory orders for December are forecast to have fallen after rising in November. Sweden’s industrial production is forecast to have slowed in December. However, the fact that the manufacturing PMI for the same month rose above expectations increases the likelihood for a positive surprise in the industrial production figure too. In Norway, manufacturing production is expected to have fallen in December, a turnaround from the previous month. Norway’s manufacturing PMI for the same month showed a decline, while it stayed below the boom-or-bust line of 50 for the 8th consecutive month. Thus, a fall in manufacturing production could signal further weakness in the sector and may weigh on the NOK a bit, at least at the release.

    • In Canada, the unemployment rate for January is expected to have remained unchanged at 7.1%, while the net change in employment is expected to have slowed to 5.5k from 22.8k. In its January monetary policy statement, the Bank of Canada described national employment as resilient but noted job losses in the resource sector, which includes the oil industry. Bearing in mind that the minor recovery in oil prices began just after the 20th of January, any resulting increase in the revenues of the oil industry may not be reflected in this month’s data. As a result, we see the possibility for a decline in the net employment change or even an increase in the unemployment rate as the fall in revenues and investment in the country’s energy sector for the better half of the month could have weighed on employment. Canada’s Ivey PMI for January and the trade balance for December are also coming out.

    • As for the speakers, we have ECB Vice President Vitor Constancio on Friday’s agenda.

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