Re Examination Of Financial Market: Return Of Market Risk Preference

After the turmoil in the UK, the British political situation has regained its surface stability, which has restored the risk appetite of the market. But now the resolution of the Bank of England is about to break this calm.

A slightly majority of the analysts now expect the Bank of England to cut interest rates by 25 basis points on Thursday night in Beijing, but the interest rate resolution still has considerable uncertainty: will it cut interest rates by 50 basis points or be unwanted? Or to cut interest rates at the same time to expand the QE? No matter what the results are, it will have a significant impact on the market.

Mark Carney of the Bank of England hinted that he might relax policies to ease the impact of the UK's decision to depart from Europe.

The central bank believes that Europe will slow down the economy.

The pound fell on Wednesday after two straight days, and the market's attention shifted from the British political outlook to the Bank of England's possible downpayment of interest rates on Thursday.

The news that Britain's interior minister Teresa May (Theresa May) will be the new British Prime Minister has eased some political uncertainty, and the pound has rebounded sharply in the first two trading days after hitting a 31 year low last week.

Since the British referendum decided to return to Europe in June 23rd, the pound has been weighed down by political uncertainty.

However, by the easing of expectations of the Bank of England, the pound / dollar fell 0.7%, at 1.3149 in New York on Wednesday, and nearly 2% on Tuesday.

SVB Minh Trang, a senior foreign exchange trader, said: "the volatility of the foreign exchange market in the past three weeks is obvious.

Now the market has regained some stability.

He refers to the impact of the referendum in Britain.

Neil Jones, head of foreign exchange sales at Mizuho Bank hedge fund, said: "the pound has once again led the foreign exchange market trend, and the market attention has been pferred to the decision of the Bank of England on Thursday. I think some of the market participants are selling British pounds because the pound is expected to reenter the downward trajectory.

The recent political stability has triggered a wave of sterling buying, but it seems that the market has digested the news, and the focus of foreign exchange market has shifted from politics to monetary policy.

Although Carney has been known as an "unreliable boyfriend" in the past few years, he recalled that during the 08 financial crisis (at the time he served as governor of the Bank of Canada), Carney's performance was amazing.

Carney, now governor of the Bank of England, seems to be ready to start again a good strategy during the global financial crisis.

In the United Kingdom, Carney has been trying to resist all kinds of turbulence. In the process, he took his experience in the 2008 BOC as a guide.

Taking action as soon as possible to prevent a deeper downturn is a striking feature of Carney's methodology. He can take this idea to this week's discussion by the Bank of England's Monetary Policy Committee on whether to cut interest rates.

James Carney, an economist at TD Securities in London and a former British and Canadian Central Bank official, said: "one of the things that Carney is very good at is to prepare for the rainy day. During the presidents of the Bank of Canada, Carney had cut interest rates sharply before the Lehman Brothers."

Rossiter said that this visionary ability to see clearly the market and the clear easing strategy may be reproduced in Carney.

Britain's foreign exchange market has set off huge waves, and the pound has not recovered completely. The British confidence index has dropped sharply. Carney has also issued a warning of a "substantial slowdown" in the economy.

Faced with all this, economists and investors believe that the Bank of England has offered more stimulus measures.

Of the 53 economists surveyed by Bloomberg, 29 expect the Bank of England to cut its benchmark interest rate in July 14th.

The 24 expected interest rate remains unchanged at a historical low of 0.5%.

23 of the economists expected to cut interest rates are expected.

25 base points; 2 people expect to cut interest rates by 40 basis points, 2 people expect to cut interest rates by 45 basis points, 2 people expect to cut interest rates to zero.

Of the 42 economists, 39 expected the monetary policy committee to maintain the QE size at 375 billion pounds, while 3 expected to expand the QE scale.

Carney has hinted that the central bank will cut its interest rate at a record low in the summer and perhaps restart the debt purchase plan of 375 billion.

This may ease the impact of Euro retreat.

Europe's uncertainty over the coming years will be uncertain as Britain needs to redefine trade relations with its main trading partners.

Jonathan Loynes, an analyst at Capital Economics, said the market's nervousness means that the Bank of England will not want to postpone action.

"We believe that the monetary policy committee will recognize the order," Loynes said.

Disappointment will bring danger and cut interest rates by 0.25 percentage points, and then restore QE in August.

Some analysts expect the Bank of England to cut interest rates more sharply on Thursday.

Alan Clarke, an analyst at Scotiabank, predicts that the Bank of England will cut interest rates to zero. "What's the use of cutting 25 basis points? This is not a fine tuning operation. Why should we shrink from it?"

The Bank of England lowered its target interest rate to 0.5% at the height of the financial crisis in March 2009, when Brown was still Gordon Brown and Carney was governor of the Bank of Canada.

Bloomberg economist Jamie Murray wrote that the Bank of England will have the opportunity to use monetary policy for the first time on Thursday to deal with the slowdown in economic growth caused by Britain's withdrawal from Europe.

There is a great possibility of cutting interest rates.

The decision of the July meeting of the monetary policy committee and the minutes of the meeting will be the most important event for some time.

Just a month ago, economists were wondering when the Bank of England would raise interest rates.

Kathy Lien, managing director of BK Asset Management's foreign exchange strategy division, said that Carney, the governor of the Bank of England, might use this week's meeting to prepare for further relaxation, so even though the GBP / USD appears to be supporting, it is far from bottoming.

IHS Global Insight chief UK and European Economic Analyst Howard Archer said: "the decline in consumer confidence and the evident weakening of corporate confidence have increased the possibility of the central bank cutting interest rates as early as Thursday, and the only question seems to be what specific actions MPC will take."

BNP Paribas of France pointed out that the Bank of England will launch a loose monetary policy cycle. When meeting on Thursday, it will cut interest rates by 25 basis points, and will not rule out further interest rate cuts in.

Steven Saywell and other analysts wrote to customer reports that after the sterling / US dollar stabilized at close to 1.3000, the Bank of England's interest rate cut and the prospect of foreign direct investment or reduction may be allowed.

Keep going down.

In the week ending July 5th, hedge funds and Asset Management Co increased their short positions in sterling, according to the US Commodity Futures Trading Commission.

The leverage fund's net profit increased by 16713 to 29819, and Asset Management Co's Sterling net short increased by 2166 to 81986..

Hans Redeker, an analyst at Morgan Stanley, predicts that the Bank of England will cut interest rates by 25 basis points on Thursday, which should keep the pound going on sale and buying risky assets to support Morgan.

Shaun Osborne, chief foreign exchange strategist at Fung Bank, Canada, said Monday that the Bank of England will cut interest rates by 50 basis points this week, and overnight interest rates will fall to zero levels, thereby opening the door for the launch of QE in August.

Osborne pointed out that many market participants expect the Bank of England to relax this week. After President Carney suggested that he would relax the policy to deal with Britain's departure from Europe, most people expect the bank to cut interest rates by 25 basis points.

Our view is, "why wait?" we expect the Bank of England to cut interest rates by 50 basis points this week, and overnight interest rates will fall to zero level, thus opening the door for the launch of QE in August.

Osborne said: "the Bank of England does not prevent the pound from falling. In fact, it has indicated that lower interest rates is conducive to economic adjustment.

We expect more aggressive policy steps to make the pound lower this week, lower than expected by Wall Street investment bank.