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Bank of England trades markets amid bond-buying uncertainty


Bank of England's Monetary Policy Report Press Conference

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It’s been a while since trading has swirled around events in the UK, but the Bank of England’s abrupt turnaround in bond market intervention is reverberating globally.

Many countries may soon face a similar battle between fiscal and monetary policy and traders say the Bank of England’s credibility may be at a low level amid conflicting reports.

The British pound continued to trade volatile on Wednesday morning. It edged higher against the dollar after the FT reported that the BoE told bankers that can be extended buy its bonds after Friday. Those gains quickly disappeared after a BoE spokesperson reconfirmed the end date of October 14.

Last night, the Governor of the BoE, Andrew Bailey, sent not only the British pound, but also US stocks (SPY) (QQQ) and the Treasury price (SHY) (TBT) (TLT) lower when he announced a hard deadline on QE.

GBP (NYSEARCA:FXB) To be 0.1% increase against the greenback around $1.098, while the FTSE-100 (UKX) (NYSEARCA:EWU) To be down 0.4%. The 30-year gilt yield increased 6 basis points to 4.85%.

S&P Futures (SPX) to be 0.5% increasebut posted a larger rate increase after the BoE dismissed the FT’s report.

Bailey bumble: Speaking after UK market hours in Washington on Tuesday, the head of the Bank of England spooked markets when he warned pension funds were having a hard time meeting signing calls funds for quick action.

“And my message to the funds involved and all the companies involved in managing those funds: You now have three days left. You have to get this done,” Bailey said.

But if liability-oriented investment managers, which help hedge funds hedge against risk, fail to accumulate cash on Friday, another turnaround could be on the horizon.

Given that the BoE’s measured gold-plated purchases (it buys in much smaller quantities than authorized) and the expansion of purchase types are stifling gains, the averages Bailey’s argument looks like a fumbling at the goal line (or closer to home, passing the ball over a bar with an empty net).

Bloomberg contributor John Authers is likely to be called “the all-time central bank snob”.

Economist Danny Blanchflower, a former member of the BoE’s Monetary Policy Committee, tweeted on Friday that his future ends on Friday. “What if they had to step in again, he looked like a fool again.”

“Where is the MPC if they are nowhere to be found in the midst of this crisis?” he say. “Groupthink means they’re completely unrelated so there’s no point in having them as they’re all knockoffs and nothing to say just specify 8 cheaper sheep and you’ll get more wool. “

The Fed stands firm: Across the pond, the message from Fed officials did not range from a hawkish stance. The market is still pricing in with more than 80% chance of the FOMC raising rates by 75 basis points in November.

Cleveland Fed President Loretta Mester yesterday said the Fed has more hiking before lending rates became restrictive, even at the expense of growth.

“With growth below trend over the next few years, it’s very likely that a shock could push the US economy into recession for a while,” she said.

While higher gold-plated yields could lead to higher Treasury yields, that aids the Fed in its primary mission of reducing inflation.

Global attention will turn to US prices today with September PPI and especially tomorrow with CPI.

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