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J.P.Morgan Recommend 3-Year Spread Wideners

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MPC decision at 12:00GMT

  • Despite the potentially inflationary pressure, the MNI Markets Team thinks the MPC will assess that the near-term risks have shifted to the downside. In the coming months, these risks are likely to balance themselves out again and a February/March hike probably remains in play (depending on the severity of restrictions over the winter period). The macroeconomic data in our view certainly argue in favour of a hike. But uncertainty seems more elevated now than in November when the MPC kept rates on hold. At this stage a lockdown or other harder governmental restrictions cannot be ruled out, and waiting seven weeks for the first hike is unlikely to make much difference to the inflationary outcome in 2-years time.
  • Markets are pricing around a 35% probability of a hike today.
  • No hike moves will see a knee jerk move higher in short sterling and lower in the pound, but lasting impact will depend on the statement.
  • Hike today will see a bigger move with short sterling curve lower and sterling appreciating.

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