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Coming up in the Asia-Pac session on Tuesday:


Coming up in the Asia-Pac session on Tuesday:


GS: Payrolls Doesn't Change Faster Taper & First Hike In June Call


Bull Theme Remains Intact


Strong Stocks, Rebound for Oil Weighs on Tsys


Trend Signals Still Point South

MNI (London)
-Carney Says Market Views For Prolonged Hike Period "Entirely Understandable"
By David Robinson
     LONDON (MNI) - Bank of England Governor Mark Carney once again refused to
criticize market rate assumptions which point to no hike through 2020, even
though the BOE Monetary Policy Committee's guidance has pointed to limited and
gradual tightening.
     Earlier this week money market pricing based on SONIA, the sterling
overnight rate, put around a 50% chance on a cut within a year. In a broadcast
interview with The Economist, however, Carney stressed that this was down to
differences in Brexit assumptions rather than any market misjudgement.
     The key points from The Economist interview were:
     -Carney stressed that while the MPC forecasts were conditioned on a smooth
Brexit, markets were placing substantial weight on a disruptive no deal one.
     The MPC scenario is that "in the event of a smooth Brexit .. what we would
see is the gradual building of inflation pressures."
     With inflation currently at the 2% target and unemployment below 4% "you
would see some inflationary pressure pick-up and in that event, (where) there is
a deal, there is a smooth transition, the economy picks up (and) we would
tighten a bit," Carney said.
     -What markets are doing, however, is to fully factor in the political risks
and the chance of a disruptive Brexit.
     "What the market is doing, entirely understandably, is putting a fairly
heavy weight on the possibility that there won't be a deal, or that there will
be a very protracted period of uncertainty," Carney said. "In that event, in the
markets' judgement, then it wouldn't be appropriate to raise interest rates."
     "And so what you are talking about is two different scenarios, two
different paths for the economy."
     -Carney accepted that if there were to be no Brexit deal, "then the path of
policy could well be different."
     He has previously said that he thinks easing is the most likely outcome in
the event of no deal while stressing that the MPC could not tolerate a prolonged
inflation overshoot.
     He repeated that a hard Brexit would be a hit to supply, which would fuel
inflationary pressure.
     In its August Inflation Report round the MPC will consider how best to
clarify the different scenarios around Brexit.
     -Carney's term as Bank governor is scheduled to end in January 2020 and
this week there has been speculation citing him as a candidate to take over the
International Monetary Fund, with current head Christine Lagarde slated to
succeed Mario Draghi in running the European Central Bank.
     Carney simply observed that he believed Lagarde was "absolutely
outstanding" but he offered no insight into his future job prospects or who his
successor is likely to be.
     A recent media report put the name of Christopher Giancarlo, the US
Commodity Futures Trading Commission head, based in Chicago, in the frame to
replace Carney.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
MNI London Bureau | +44 203-586-2223 |