Aurelia Butler

The Bank of England chief economist on Friday said the conditions now existed for him to vote for higher interest rates, but he declined to indicate whether his initial move was likely to be in December or early next year. Huw Pill said there was unlikely to be any spike in unemployment after the end of the government’s furlough scheme for company workers, the economic recovery was mature and inflation was likely to remain persistently too high if the BoE failed to raise rates. The central bank’s Monetary Policy Committee surprised financial markets this month by voting to hold rates at the historic low of 0.1 per cent despite surging inflation. The next MPC meetings are in December and February.Pill said in a speech to the CBI employers’ organisation that the BoE needed “the flexibility to deal with unforeseen events”, noting the new coronavirus variant B.1.1.529 as a potential spanner in the works, but indicated he was minded to vote for a rate rise soon. “Although supply disruptions weigh on activity, they also create inflationary pressures,” he said.“The labour market is tight. Given where we stand in terms of data and analysis, I view the likely direction of travel for monetary policy from here as pretty clear.” Pill’s CBI speech suggested that he, and BoE governor Andrew Bailey, are now minded to vote for rate rises, although they want to retain flexibility on the exact timing after difficulties in the central bank’s recent communications. “We need to move forward and then re-evaluate where we are and whether that permits or necessitates another step forward,” said Pill, referring to rises in interest rates in questions after his speech.Bailey told an event at Cambridge university on Thursday: “We have a very tight labour market at the moment, there is no question of that.”Pill said in his speech that in September the BoE had needed to prepare the ground to raise interest rates from 0.1 per cent if the recovery continued strongly. “In my view, the ground has now been prepared for policy action,” he added. Pill repeated on Friday comments from last week that the burden of proof had shifted and he now needed to see reasons not to back a rate rise rather than the case for a hawkish vote. This is not the first time Pill has signalled he is minded to vote for higher interest rates soon.Before the MPC meeting this month, he outlined his discomfort with a 5 per cent inflation rate in a Financial Times interview, but instead of voting for tighter monetary policy instead chose to wait.

While Pill said he was being clear about his likely votes on policy in the near future, he added it would be wrong to give a view on how high interest rates might go beyond the next few months, noting it was important for the MPC to feel its way. “The MPC will need to assess the impact of each policy decision it takes on a step by step basis, and then evaluate if and when further action is needed,” said Pill.“If data evolve unfavourably and inflation is forecast to fall below target at the policy-relevant horizon, we can remain on hold or reverse course. If data strengthen and inflation is forecast to remain persistently above target, we can continue to raise rates.” More

LONDON (Reuters) – Risks of a new COVID hit to economic activity are clobbering expectations for rate hikes next year from the world’s major central banks, a potential setback for the dollar and other currencies where wagers had been most aggressive.Money markets no longer fully price a 25-basis-point interest rate rise by the Federal Reserve by June 2022, nor are they positioned for a full 10-bps hike from the European Central Bank by the end of 2022, as they were just a few days ago. And the chances of the Bank of England raising rates next month are seen around 53%, from 75% on Thursday.Those shifts come after the detection of a new coronavirus variant in South Africa triggered stricter border controls from several governments, as scientists sought to determine if the mutation was vaccine-resistant.”While central bank commentary has been focused on upside risks to inflation, this (new COVID variant) highlights that there are significant downside risks and we are in a significant phase of uncertainty for the economy,” said Chris Scicluna, head of economic research at Daiwa. Rate hike bets slip as new COVID variant rattles markets: https://graphics.reuters.com/MARKETS-RATES/mopanleydva/chart.png In an echo of the panic that swept markets when COVID was spreading early last year, oil prices slid over 6% on Friday, travel industry shares notched up falls of 6% or more and two-year U.S. Treasury yields fell 12 bps in their biggest daily drop since March 2020.Currency traders had been favouring the U.S. dollar and others where rate hike prospects appeared strong, driven by higher inflation and stronger economies. Now a shake-out appears on the cards. The dollar index had hit 17-month highs after President Joe Biden said on Monday he would nominate Fed Chairman Jerome Powell to a second term. Then, minutes of the Fed’s Nov. 2-3 meeting showed more policymakers open to speeding up the tapering of asset purchases and raising rates.So with three 25 basis-point Fed increases factored in for 2022, speculators accumulated a $20 billion “long” position in the dollar, data from the U.S. CFTC showed. Positioning on yen, Swiss franc and euro meanwhile has been bearish, reflecting the view policy tightening is distant for those countries. If the new COVID variant has indeed disrupted Fed policy, “the dollar may be a bit more vulnerable than the euro because we are already talking of two-three rate hikes next year from the Fed,” Francesco Pesole, FX strategist at ING Bank said. Yen positions: https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwndokpo/Pasted%20image%201637919367896.png The sharp yield drop on 2-year Treasury notes — a bond segment particularly sensitive to interest rate changes — pushed its yield premium over Germany 10 bps lower.Unsurprisingly, the yen and Swiss franc gained over 1% versus the dollar while the euro shot up 0.75% in one of its biggest daily jumps of this year.Some saw the moves as a reality check. UBS Investment Bank chief economist Arend Kapteyn said while confidence in improving U.S. labour markets could fade if a new variant takes hold, it was still early days in terms of gauging the impact.But he added that “the market had gotten too far ahead of itself in terms of pricing a shortened taper window and multiple hikes next year”. US rate hikes: https://fingfx.thomsonreuters.com/gfx/mkt/movanlewdpa/USRP1.JPG COVID IN A TIME OF INFLATIONThe new variant may also complicate the task for central banks if it worsens the supply chain delays that are partly blamed for stoking inflation. Britain, where inflation has hit 10-year highs, had some 70 bps of policy-tightening priced by mid-2022, despite a lacklustre economic recovery.But on Friday, sterling fell 0.6% against the euro; alongside the Kiwi, Aussie and Canadian dollars, the pound was most vulnerable to easing rate expectations, MUFG analysts predict. In Europe, the new strain could strengthen the hand of doves on the ECB’s Governing Council.While the ECB is expected to wind down its 1.85 trillion euro ($2.08 trillion) pandemic emergency stimulus scheme, Mizuho strategist Peter McCallum now sees a greater chance the programme gets extended beyond the March deadline.That view resonated across southern European bond markets, the programme’s biggest beneficiaries. Italy’s 10-year borrowing costs slid under 1%, with the biggest daily fall in three weeks. “They (ECB) were saying that the European situation doesn’t change the PEPP outcome but if there is a new variant requiring new vaccines that surely does change the picture,” said McCallum. More

Poland is on the front line of a migrant crisis the European Union says is engineered by Belarusian President Alexander Lukashenko.”The leaders also discussed deepening our defence partnership and working closely together through NATO to ensure regional stability,” Johnson’s spokesperson said. More

ISTANBUL (Reuters) – Some Turks are struggling to buy medicines as the industry warns that stocks are shrinking after an “unsustainable” crash in the lira has pushed up import prices and disrupted supplies. Industry leaders and pharmacies said the 48 billion lira ($4 billion) sector was facing steep losses on some products, and warned of disruptions in coming months for drugs including those for children, common colds, diabetes and high blood pressure. Already weak, the Turkish currency has shed as much as 25% since the beginning of last week due to what analysts call reckless interest rate cuts that have caused shortages of some imported products.Nezih Barut, chairman of the Pharmaceutical Manufacturers Association of Turkey, told Reuters stocks of some drugs were down to a week, compared to a month usually. Pharmaceutical companies are being forced to curb some suddenly expensive imports due to the currency drop, he added. “Some pharmaceuticals are not on the market. This is caused by forex rates and also the difficulties we face in accessing raw materials at a global level,” Barut said. For one mother, the concerns were acute. “I looked everywhere and could not find more, and pharmacies can’t tell me when they will have it next,” said the nurse in Istanbul seeking medicine for her 16-year-old son with cerebral palsy and epilepsy. “I have to speak with our doctor and change the drug if I cannot find it, but I hope we don’t have to do that,” she said, requesting anonymity. “We were told that it was because of the exchange rate adjustment.”The latest lira slide exacerbated an existing problem for an industry that imported 24 billion lira ($2 billion) worth of medications last year: the Turkish Pharmacists Association said earlier this month there was already trouble accessing 645 medicines.The lira has tumbled by 38% against the dollar and 32% against the euro so far this year. Selling accelerated this month when the central bank, under pressure from President Tayyip Erdogan, slashed rates by another 100 basis points to 15%, well below inflation at 20%. The currency was firmer on Thursday after hitting a record low of 13.45 to the dollar on Tuesday.But the heavy depreciation only stokes Turkey’s inflation via imports, including drugs. “Manufacturing or importing pharmaceuticals is unsustainable at current forex rates,” Barut said, adding that his association would ask the government for a minimum 35% price increase for next year because of the exchange rate. DISRUPTIONSPharmacists predicted supply problems until February, when the next annual reference price for drugs is set.”There will be shortages of many drugs, especially children’s drugs, hormone drugs, blood pressure medications, some diabetes drugs, insulin,” said Ayse Sibel Birinci, a pharmacist in Ankara. Ahmet Metin Kablama, another pharmacist, said children’s painkillers, fever suppressants, nasal sprays and cough syrups were particularly scarce due to the lira’s fall. “Since there is a flu epidemic as well as COVID at the moment, patients have difficulties in accessing this type of medicine,” he said. Officials say the sector’s difficulties are also driven by a reference pricing system in place since 2004.Under the system, 5 EU countries are taken as references and the lowest price among them is the “reference price” for the medicines in Turkey. For drugs with generic competition, 60% of the reference price is applied, based on a euro exchange rate which is fixed for one year.Companies say the rate is too low. It was set at about 4.6 to the euro for this year, while a euro was worth 13.4 lira on Thursday. That means delays for some people. “I needed to buy a vitamin but I could only get it after waiting a couple of days,” said Elif Kucuk, 43, in the city of Erzurum. “The pharmacist said there wasn’t any in stock.” More

Fund flows into U.S. equities bonds and money market funds: https://fingfx.thomsonreuters.com/gfx/mkt/znpnekwlmvl/Fund%20flows%20into%20U.S.%20equities%20bonds%20and%20money%20market%20funds.jpg The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose to 0.687% on Tuesday, its highest level since early March 2020. However, Treasury yields dipped on Friday as concerns about a new COVID-19 variant drove demand for safe-haven assets. U.S. taxable bond funds faced net selling of $1.08 billion compared with inflows of $3.97 billion in the previous week. Municipal bond funds attracted $598 million in net buying, the smallest in four weeks. U.S. short/intermediate investment-grade funds witnessed outflows of $781 million but U.S. general domestic taxable fixed income funds and inflation protected funds received $1.83 billion and $1.15 billion in inflows respectively Flows into U.S. bond funds: https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkoaxpd/Flows%20into%20U.S.%20bond%20funds.jpg U.S. equity funds saw net selling for a second straight week worth $4.27 billion. Investors sold large-cap equity funds of $4.4 billion, however, they purchased small- and mid-cap equity funds of $2.17 billion and $1.84 billion respectively.U.S. growth and value funds saw outflows amounting to $2.2 billion and $872 million respectively. Fund flows into U.S. growth and value funds: https://fingfx.thomsonreuters.com/gfx/mkt/jnvwexmjovw/Fund%20flows%20into%20U.S.%20growth%20and%20value%20funds.jpg Technology and real estate funds drew inflows of $730 million and $539 million respectively, while financials and health care, each saw more than $0.7 billion in outflows. Flows into U.S. equity sector funds: https://fingfx.thomsonreuters.com/gfx/mkt/gdvzydxkepw/Flows%20into%20U.S.%20equity%20sector%20funds.jpg Meanwhile, U.S. money market funds pulled in $14.98 billion in net buying, the biggest inflow in four weeks. More

LONDON (Reuters) – Britain’s financial watchdog will speed up its response to cases of financial misconduct and fraud after criticism it has been slow to tackle the soaring rate of scams costing consumers millions of pounds.The watchdog said on Friday that it was introducing proposals it put out to public consultation in July that certain decisions regarding authorisations, starting civil proceedings and using powers to curb a financial firm’s activities should be taken by its executive staff.Such decisions had been taken at arm’s length, by its Regulatory Decisions Committee, which in future will focus on significant misconduct cases, the FCA said.Britain is facing a wave of financial frauds and scams costing consumers 754 million pounds in the first six months of this year, up 30% from the same period in 2020, piling pressure on the FCA to act more aggressively.The watchdog was also criticised for being too slow in its handling of London Capital & Finance, an investment fund that collapsed, forcing the government to pay compensation to investors.FCA Chief Executive Nikhil Rathi said earlier this year the watchdog should be readier to test its powers to the limit instead of being worried about challenges to its decisions in court.”We want to be an organisation that runs toward the fires of complex, difficult issues – and to try to put them out,” Rathi said in July.The FCA said on Friday that most respondents to its public consultation were concerned that speed and efficiency were being emphasised unduly and would increase the potential risk of a lack of fairness and objectivity in decision-making.The watchdog made no changes to its proposals, saying its procedures provide a fair process. More