BOE: Breeden speech highlights
Jan-09 16:04
- "In December I judged that the evidence supported maintaining Bank Rate at 4.75% and that recent developments supported the case for a gradual approach to the withdrawal of policy restrictiveness in the coming months."
- "I will be focused in particular on further diagnosing how much of the slowdown in activity in the economy can be attributed to supply and how much to demand given their differing impacts on the medium-term outlook for inflation. And I will continue to analyse the evidence around how employers are responding to the still-elevated level of growth in employment costs and what that means for inflation persistence."
- "Two important questions follow from that judgement.
The first is how restrictive we are and should be – how far away we are from r*, the neutral level of interest rates that leaves the economy in balance.
I’ve spoken already about how hard it is accurately to diagnose the nature of the shocks that are hitting our economy. In my view understanding the impact of these shocks and how they might affect medium-term inflation is the best way to feel our way to the right level of restrictiveness over time, led by the evidence as we see it.
The second question is how quickly we should remove that restrictiveness. That is difficult to know and will depend on how the factors above evolve over time. To be clear, I expect Bank Rate to come down over time as the effects of the large shocks of the past continue to abate."
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US: Hamas Remains Obstacle To Gaza Ceasefire Deal, White House
Dec-10 16:02
White House National Security Council Spokesperson, John Kirby, has told reporters, "We are not on the verge of completing a [ceasefire] deal,” in Gaza, “but we think there is an opportunity to get a deal done." Kirby noted that Hamas “remains the obstacle” to a deal that appears to have gathered momentum in recent weeks.
- Kirby’s comments come as White House National Security Advisor Jake Sullivan begins a trip to Israel designed to push a deal over the line.
- Barak Ravid at Axios reports on X that senior Israeli intelligence officials and IDF Chief of Staff General Herzi Halevi met with Egyptian counterparts in Cairo today to discuss security issues related to the Gaza-Egypt border, a crucial component of a ceasefire deal.
- Ravid notes “Israel is cautiously optimistic about its ability to advance a partial deal to release hostages… but no understandings have been reached yet that would allow to move towards detailed negotiations on an agreement.”
- An Israeli official told Axios: "Until recently, the thinking in Israel was that Hamas doesn’t want a deal - now it seems that there is a shift and that Hamas may have changed its mind. There is a chance of reaching a deal in the coming month.”
STIR: Midmorning SOFR Options Add
Dec-10 15:40
- -20,000 SFRH5 95.62/95.87/96.12 call flys vs. 95.81 puts, 1.5-1.25 ref 95.875
- +2,000 SFRH5 95.87 straddles, 26.25 ref 95.87
- +5,000 SFRU6 96.62/97.12 call spds 17.0 ref 96.34
- 2,000 0QG5 95.87/96.12/96.25 broken put trees vs. 0QH5 95.75/96.12/96.25 broken put trees
CANADA: Freeland Appears To Accept Higher Fiscal Deficit Tracking
Dec-10 15:32
- Speaking to reporters in Ottawa, FM Freeland has said the government will meet its debt-to-GDP projection for FY 23-24 and will reduce the ratio over the medium term as it looks to maintain one of its fiscal anchors.
- Tellingly, our reporter writes that she declined to answer several questions about whether she’d honour a pledge to limit deficits to C$40bn after the 2024 Budget showed a C$40bn deficit in FY23-24 before C$39.8bn in FY24-25 and then declining.
- “A declining debt to GDP ratio is the guarantee, the numerical statement, of Canada’s fiscal sustainability,” Freeland said.
- This comes ahead of the government’s long-awaited Fall Economic Statement due Monday (Dec 16).
- Recall that the Parliamentary Budget Office in its Economic and Fiscal Update back in October projected a federal deficit of C$46.8bn for FY 24-25 and C$46.4bn for the current fiscal year so this is only really confirming existing tracking.
- That estimate was prior to the government announcing a two-month GST/HST break which the PBO has costed at C$1.5bn in FY 24-25 (and potentially a further C$1.3bn on top of that) plus circa C$4.5bn for a debated $250 rebate to as many as 19 million Canadians in April.
- Despite a likelihood of larger than previously budgeted deficits, a pledge to maintain a downward trajectory in the debt-to-GDP ratio looks to have modestly supported GoCs relative to Treasuries. Can-US yield differentials saw a step lower for the 2Y to new fresh multi-decade lows of -125bps whilst the 10Y differential remained at joint lows of -118bps. Monday's details will clearly be more important (plus any leaks between now and then) and of course the BoC decision tomorrow.
