 Okay, very good morning. It is Thursday the 4th of November. Thanks to everyone who joined me online for the live FMC coverage last night And just to put it out there right now I'll be covering the Bank of England live as well on the YouTube channel All you need to do is subscribe to the channel, hit the bell icon, and you'll be notified when I go live at 1145 GMT today Talking about the Fed first, let's just wrap up of how that finished and here's here's quite a Funny but very on-point graphic that I saw last night, which was of course the red button got pushed last night That is the Fed have begun tapering and You know the the graphic kind of saying about all this talking and talking and talking And in matter of fact, you know comparative to what we had in 2014 Which a lot of people have mental scarring of the taper tension tantrum we had at the time Which was when the Fed were going down a similar juncture in policy at the time of tapering down there They're kind of big QE programs. The market has really digested this with no problem at all and Take your hat off. I mean to drone power on the Fed This is the art of forward guidance and the fact that they've been able to execute this moves without destabilizing markets is a function of Forward guidance, you know in motion in that respect So it's been months and months and as the graphics kind of talking about here It's talking about talking about Talking about tapering and then it's talking about tapering and then it goes on and on and on the cycle to the point Of which they do it and so this is that drip feed approach So the investors the marketplace can reprice then for the fact that policy is going to change at a point in the future And their objective is to do it without causing shock and surprise which can destabilize market So all in all the Fed came out Very much as expected that we're not talking about changing rates right now The actual QE taper size was 15 billion divvied up with treasuries and MBS 10 and 5 billion Absolutely as expected One of the key comments though one of the first things if you you know You can go back and watch my my live commentary on the YouTube channel It's there now recorded, but this is what the Bloomberg headlines look like when they hit the tape last night And as you can see here, these are top three here what I often refer to as the stickies If you have a Bloomberg terminal if you've ever seen one what you tend to see is a whole drop of comments Maybe 20 or so where Bloomberg have extracted out the main sentences from the statement But they tend to keep them as all the comments start ticking down Three stuck at the top, which is what they deem the most important and typically given that most people have their eyes firmly Focused on Bloomberg as the benchmark terminal the market tends to react to those first And so if I go through those top three headlines the Fed says tape is starting November monthly reductions of 15 billion Completely as expected. They said prepared to adjust pace of taper as warranted very much as expected So that optionality to adjust things as conditions might evolve because we're talking of a timeline over the period of several months And then this was the key one inflation elevated due to factors Expected to be transitory So basically they've kept transitory and despite then the market's aggressive repricing to bring forward the timing of rate hikes Chiefly on the basis of inflation being higher more prominent more long-lasting more durable Than what they've previously foreseen They've stuck to their guns and they see it as transitory and actually the reaction effect then was their equities Guess what fresh record highs again. No surprises there the NASDAQ just raced higher S&P followed and the Dow you can see on the left. So uniform rallies Record closes. I think for a fifth consecutive session now as far as some of the US indices are concerned the dollar initially weakened Albeit that entire FMC move has been reversed in the major currency pairs So I would be aware of that so that the move definitely is sustained for equities, but FX It's pretty much reversed already as you can see here So initial dollar weakness you a dollar up and we reversed and we were pretty much scratched where we were free similar price action for The lights of cable as well why it's more prominent for equities I guess is this whole idea I was talking about in the briefing yesterday They're pulling the trigger starting tapering very much as expected, but a more measured Approach and as I said last night and the markets tend to be quite behavioral always tend to kind of you give an inch they take a mile with the pricing and Therefore then when they've come out and said, you know what we're just going to stick to our our line of transitory That's a supportive environment for a more cautious measured normalization approach that support of equities and environment where after that Covid impacted weaker Q3 things not tend to pick up in Q4 as their expectation as Covid at the moment at least touch wood remains fairly suppressed in the US and with earnings being pretty decent So equities just continue on their merry old way for the moment this morning then Tea notes pretty much unchanged and really lack of movement to last night's announcement You can see some of the whipsaw price action But not a great deal and then gold had a little bit of a bounce So again, it was not so much of a dovish reaction I mean it was in terms of the multi-asset reaction But it was more a case of a less hawkish shock that created some of the moves last night So the initial dollar weakness Weakie yields higher stocks and gold benefited from that initial move as you can see here and reversed About 50% of that initial move that we saw at the sell-off towards the open on comics yesterday So that was that that was the Fed but attention turns now of course to the Bank of England and and this one is set to be one of the most exciting ones actually we've had on a while because Economist analysts are basically split between Will they won't they hike rates today? And that's right We're not talking about the same sequence as the Fed and other central banks which typically follow the uniform approach of just It's winding down QE and then having a period of kind of policy hold before then commencing rate hikes in the future Don't forget we're talking about rate hikes in 2022-23 for the Fed with the Bank of England they might pull the trigger today, of course And so what's what what are we looking for here? And there are a couple of different things to be aware of for one. Let's just jump over to this This is in inflation And inflation is expected to peak at more than double the Bank of England's obviously they have a 2% target So because of the supply constraints, you know the price pressures that we've seen globally The UK is no different and inflation has overshot on the upside if over and above what generally analysts expectations have been So going back to the black line that was when they last released their monetary policy report So remember The Bank of England have eight meetings today's meeting is one of the alternate for where they release their forecasts for Inflation and growth and from that we can determine then over the medium term horizon This is all terminology medium term referring to effectively two years Where then interest rates are likely to be in time. So this is their method of giving you forward cut forward guidance through forecasting of Growth and inflation so you can see here things have changed Back in August there was a firm belief that inflation was indeed transitory that belief has somewhat diminished Given some of the data points that we've seen and as I said the more durable nature of That the price pressures are now more widespread than just being concentrated in things more idiosyncratic to the pandemic pains if you like of reopening and so we are expecting the latest Forecast to probably pay heed to that you can see the office of budget responsibility in October had a little bit more punchy Outlook, but it's inflation really that has people uncertain However, I don't think I have a jobs market one here to hand But the idea is that the furlough program That affected the jobs market Won't be available in terms of the latest data of the winding up of that program until the middle of November So essentially the Bank of England have gone to this meeting Not really knowing fully about what ending furlough has done to the labor market in the UK And remember just like in the US is the labor market and inflation that people are looking at these policy makers to determine their decisions And so can they make that call without having that data is what? divides then the market's opinion of will they won't need today so a lack of clarity is what's Causing this one of the things then that we have been seeing is that Much in a similar vein. I think that explains a lot of the reaction to the Fed last night the Bank of England I mean UK rate market has been uber aggressive in pricing in rate hikes and actually In terms of today as you can see here going back to the September meeting This was the black bars You can see just how much more aggressive the market is pricing in basis point rate hikes going forward in time from the Bank of England and so Looking at the numbers for today The markets are betting a 15 basis point rate hike to counter inflation that may hit as high as 5% and A lot of that's been fueled you remember by the Bank of England governor Andrew Bailey who spoke last week and Despite this pricing he didn't really push back against it And that's what's fueled those more bullish minded of the rate hikes To support that idea that they're gonna go with that today given the fact that govern himself You would have thought if they weren't committed to follow that course of action Then he would have pushed back against it and he didn't So whatever the outcome today for the Bank of England is going to be a really close call And that definitely is going to be reflected in the types of intraday immediate reaction You're going to get in sterling currency for example because when something's Fairly 50-50. Well, then there's 50% of the market that's going to be wrong And so therefore unlike the Fed would tapering where you know markets are almost entirely priced for that outcome When it happens the reaction is nil if you like so today's going to be a pretty Spicy reaction, so I'm looking forward to covering it later One of the things then to be aware of is the vote split obviously This is a unique feature of the Bank of England of all of these members the nine you obviously get a vote split when you get the initial headline reading and The split can go Any way of course, but the idea here being that Saunders and Ramsden would be definitely in the camp of looking to hike rates given their commentary Hube pill and Andrew Bailey the governor have both as well-made commentary within the last week Which would suggest that they'd be in favor of a hike now? Kathleen man, Silvana, Tenreira and Jonathan Haskell are definitely on the Wouldn't want a hike site. I think we know that pretty much for sure given the comments that they've made And so really the balance of power lives with the deputy governors And this is what gets quite interesting obviously they are the deputy governors and the governor the governor's been fairly Fairly clear that I think he wants to support hike Do the deputies go against their boss basically? They should I don't think they should let their job title dictate their decision-making They should make a judgment on the basis of their analysis and cunliff and broadband It's a little bit more uncertain. So the balance of power really lies there I'd say with those two and the vote split could very well be five four in either direction And so hence to show how really close this is I did see a comment from a senior economist that HSBC this morning and Liz Martins She said whatever the Bank of England decides to do on interest rates They suspect it will at least push back a little on the extent of tightening that's been priced in Via its inflation forecasts, so let me explain this in two steps What this means is let's say they do hike rates even if they do they will want to kind of quell markets Probably initial assumption then that the Bank of England going to immediately start a right hiking aggressive cycle as per what the markets have planned If they do hike I think what they'll want to do is use the inflation forecast Which is the second point that HSBC are making is that to say that inflation if their forecast kind of peak up and then decline again, it plays into that idea that the High level of which inflation is tracking at the moment will be temporary Or be it slightly more longer and protracted than what they thought before But eventually we'll come back down towards in the right direction to target and so therefore reshaping that inflation expectation Can then allow the markets to say okay? They've hiked but they're not going to go crazy and start hiking multiple times as what markets are now starting to get into the mindset of And so there's ways of which the Bank of England can manage this even if they do hike rates So one thing I would say is that although the initial reaction on a right hike might be an aggressive pop higher in sterling Just be careful about a fading of that move if the inflation forecasts then starts to Suggest a moderation of inflation in a fairly sharp fashion so that they just want to hike rates up to buy themselves some rooms and ammunition that sense perhaps to To offset some of their price pressures at the moment or as little as that I think would likely do for me I'm gonna say they don't hike We'll see if I'm right or not by tomorrow, but let's see how it goes and if they don't hike Again, you're going to be looking at initial sterling weakness. It then really depends on What they say in the inflation forecast, but if they're not hiking yet then one would think the inflation forecast would be more indicative of These current price pressures alleviating over time which then could be quite an interesting More persistent downward move in sterling for the rest of the session UK yields would decline in that scenario and the likelihood is FTSE equities would benefit from that that scenario. All right, let's move on The other thing we've got of course today. So see busy day. We've got the OPEC meeting Oil yesterday fell the most in nearly two months Let me just bring it up here That sounds pretty sensational oil fell the most in two months. I mean we were trading up You know if we go back to really the beginning of the week We were trading at 80 for 85 mark and we've got down to 80. So we've we've shed five dollars However, let's just put it on a weekly and let's just like take some perspective here We've rallied from 60 to 85 So coming off five bucks for me is nothing to sweat about as far as the The idea you know coming out of the intraday environment, of course I wouldn't over interpret this weakness thinking oh my goodness This is you know, there's China Covid's picking up in a number of provinces and that's gonna impede demand and all these types of things I think as much as that may play into the short-term price mechanics I think long-term even if we pull back further the IO or area of solid support I would look at a 76 88 as you can see on the weekly bars, which would be these areas here Defined by those two circles. That's a peak of price activity. We had in 2018 and in December of 2021 so even if we moderate further it wouldn't Necessarily make me feel in any way negative about this current oil price Even if we came back down another four or five dollars from where we are at the moment to be quite honest Couple of things then to be aware of one is Talking of OPEC yesterday, we had crude inventories The DOE is rising to their highest level since August We've also got Iran who said nuclear talks are set to resume this month And that being on the 29th of November. I've always find it a bit hard to buy into this idea So Bloomberg saying here losses after Iran announcement Can't help but we've been here before right many times if you followed this briefing Over the course of the last year. How many times has the market? just got super giddy and excited about the fact that Iran's entering dialogue with the West again only then for the inevitable to happen that it's a very hard thing to reestablish a relationship that just basically was you know, destructed over the course of the Trump administration and so I Still find it This move that's happened this moderation in prices from these recent highs is more profit-taking and the news Is just a catalyst to do so rather than the news being the driver of the move if that makes sense So it's good. They're gonna chat. Are they gonna broker a deal and Iran's gonna flood the market? No I don't think so not any time soon for sure So a couple of other things OPEC then is meeting virtually today The US has called on the group to raise supplies faster to quell the high domestic price that they're seeing at the moment Just another another headache for Joe Biden at the moment who I don't know if you followed and I haven't really covered in the briefings But there's been some quite interesting political movements happening in Virginia Where the democrats lost they got wiped out effectively But I think he was a prior a previous private equity guy Who's stormed an area of which the democrats ruled by a long distance Only not that long ago when the election happened and it's not it's not a big deal But it's not a good sign for Biden and and certainly he's under multiple pressure points at the moment We're trying to get passage with his bills and foreign policy and lots of other things at the moment But back to the point of OPEC the US have been putting a lot of pressure On OPEC because of course high prices at the pump are not then conducive of high consumer morale for the administration I guess the question then comes is is OPEC going to React to this The answer to that is no I think they've been fairly clear Russia who's like one of the key players in this as well as Saudi They're just going to stick to their plan of gradually returning oil to the market of 400 thousand bowels per day That's their predetermined kind of game plan and I think they'll stick to that and they will not React to what the US is saying don't forget as well There's a degree of optics in what the US are trying to construct at the moment So whether or not OPEC react to what the US Say or not doesn't I don't think really matter for Biden and the administration They just need to be appear to be putting pressure on to deflect them The blame of high prices on to the Middle East for example, which I think tactically is a sensible approach Um, so Yeah, that that's pretty much it Um Other reasons for caution as I mentioned the covid situation in China is deteriorating Might well lead then to the idea that look we are going to return crude to the market But we're going to follow the plan There's no need to get more aggressive with it as we Adopt a more cautious approach to see how some of these covid Outbreaks play out in mainland china All right, otherwise What else have we got today? Well, we've already had some german data industrial orders We came in just a slight bit weakened expected nothing dramatic 1.3 against 2 percent Otherwise the morning fairly quiet. You do have the service PMIs, but these are final readings for october So then really it's the bank of england and remember you've got 12 o'clock and then governor bailey speaks at 12 30 And we also have don't forget you get the minutes you get the vote split You get the monetary policy report those forecasts all coming out today So once again, I'll be a lot live on the channel at 11 45 Then in the u.s. Afternoon your regular weekly jobless claims Coming out expected to decline once more to 275 thousand against the previous 281 Speaker wise aside from bailey It's probably worth noting that christine lagarde and schnabel from the ecb speaker 12 45 now Lagarde speech yesterday. She pushed back against market bets for an interest rate increase in 2022 She was a little bit more explicit yesterday And that comes after the fairly timid approach that people interpreted from her ecb meeting that we saw most recently So despite the lights of the fed tapering and potentially the bank of england hiking Lagarde kind of taking europe out of that group and being a little bit more passive in terms of controlling and the European rates market not getting caught up in that more kind of hawkish mindset And that's what she was trying to push back against Otherwise elders and schnabel speak again at 2 and 6 15 respectively supply fixed income out of spain and france fairly sizable amounts this morning And then that is pretty much it so i'm gonna leave it there Hopefully i'll see you guys as well later on on the youtube channel and good luck for today. Take care