Kit Juckes, Societe Generale:
If you take history as a guide you could be drawn into simple US and European monetary policy conclusions: Sustained policy de-coupling has n ever happened, Fed rates reach lower lows, UK rates usually reach higher highs and the ECB lags the others.
Markets are pricing in a faster pace of rate hikes than anyone expects as term risk premia are jacked up but can I infer anything from the past? Well, given just how strong UK data have been and how stubbornly high UK inflation is, should the UK market still price rates well below US ones in 5 years time?
Things are different this time (aren’t they always?) but a global recovery will see UK inflation fears return. Being long UK breakeven inflation appeals hugely.
We don’t know if we will get a statement from the MPC. Given the strength of recent data, fighting the upward trend in market rates may be an uphill task today. But we will get a press conference from the ECB.
Bank lending is still contracting, inflation rates are still edging lower, and unemployment is still rising. The economic outlook may be a little less dismal and market stress may be largely absent, but that should not stand in the way of Mr Draghi’s desire to guide forward rate expectations lower.