Intraday Market Thoughts

GBP Ignores UK Bank Downgrade after Yesterday's QE2

by Kyle Morrison
Oct 7, 2011 9:03

UK producer prices set to push higher in September, after QE2 surprise, German industrial production set to plunge, Bank of Japan keeps monetary policy unchanged, US employment report. 7 Premium trades hit all targets, 1 stopped out, & 3 are points away from completing all targets. Today's Premium piece will be released ahead of US jobs report.

Yesterdays surprise move by the Bank of England to inject an extra 75bn into the UK economy over the next four months could prove highly controversial, especially if inflation continues to remain high. Today's release of producer input prices are expected to rise again from 16% to 17%, while output prices are expected to push higher as well from 3.6% to 3.7%.

Mervyn King's assertion that the global economy is facing the worst financial crisis seen since the 1930s was behind the banks decision to act now, however it is hard to see what difference it will make unless governments not only here but also in Europe start doing the jobs entrusted to them.

The MPCs assertion that inflation will eventually slip back in 2012 is cold comfort when prices are set to push up towards 5% next week. Given the banks track record on inflation in the past 3 years that is by no means a given.

Moody's downgraded 12 UK banks; 1-notch downgrade of Lloyds TSB Bank plc (to A1 from Aa3), Santander UK plc (to A1 from Aa3), Co-Operative Bank plc (to A3 from A2), a two-notch downgrade of RBS plc (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of 7 smaller building societies. The ratings of Clydesdale Bank were confirmed at A2 (negative outlook).

7 of Thursday's 10 PREMIUM Intermarket Insights hot all targets, 3 in progress & 1 stopped out. Find out here: To become a member, join here:

Later on German industrial production foe August is set to drop sharply by 2%, following in the wake of yesterdays factory orders data which also fell back 1.4%. It makes all the more puzzling the reluctance of the ECB to cut rates yesterday, though the lack of any comment about monetary policy being accommodative could well open the door to a cut next month.

The additional liquidity measures by the ECB have eased the pressure on the banking sector and could well buy time for European governments to cobble together a recapitalisation plan as Greece heads for default.

The Bank of Japan as expected kept interest rates unchanged in a range of 0% to 0.1%, but they also extended a post earthquake lending program by six months. The board said that the Japanese economy was continuing to recover though it did express its concern over the slowdown in global economic growth.

In the US the big event of the day is the September employment report which, it is hoped will be an improvement on Augusts disappointing number of zero jobs added.


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