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Rerun: What to watch and what will move

BOE
  • The MNI Instant Answers will be the easiest way to quickly digest the key points from the BOE meeting (with the decision due at 12:00GMT and a press conference at 12:30GMT).
  • So what is likely to move the market the most?
    • Hike or not? Obviously there is so much priced in if we don't see a hike now it will be hard to see the MPC hike as aggressively as priced in by markets. So a decision not to hike now probably sees the short sterling strip move higher and the pound weaken (note that the pound tends to follow the 2-year ahead rate expectation).
    • End QE early? Not expected by the market so would be bearish for gilts. Gilt futures would probably move through the short-term support at Monday's low of 124.25 with the 123.43 October 21 low the bear trigger (and likely to provide more support). Impact on short sterling/the pound limited apart from as a signaling factor that the MPC is in hawkish mode.
    • Inflation forecasts at 2/3-year horizons: These are likely to be higher at constant rates. For me, the 3-year is the more important as it will signal whether the 1.25% priced in at the end of next year is too much (which would be the MNI Market's team's base case). Most likely in our view is that constant rates 3-year CPI forecast moves further above 2% but the market rate-based 3-year CPI forecast is below 2% (this would be a push back on market pricing and see short sterling rally and the pound weaken). If we were to see the 3-year inflation forecast 2%+, this would almost be akin to endorsing market pricing. And as we know, if market pricing is endorsed, we are likely to see even more priced in! So the sweet spot for only a small move is probably 1.9% on the 3-year market-based CPI forecast.
    • The answers to all of these will be in the MNI Instant Answers, communicated via Bullets service at 12:00GMT.

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