Another light day for statistics, with focus on earnings, events and trade negotiations news; digesting UK PSNB, awaiting US Philly and Richmond Fed surveys; BoE FPC and Reeves testify, ECB Bank Lending survey, RBA minutes, Fed bank capital conference
U.K.: wider than expected PSNB budget deficit only adds to case for ending BoE active Gilt sales and Treasury/DMO ‘twist’ operation
U.S.A.: Bessent touting Fed operational review a more material threat to independence than replacing Chair
EVENTS PREVIEW
The earnings and events schedule will garner more attention than a very light day for statistics, which has the UK PSNB budget data to digest ahead of US Richmond and Philly Fed surveys. On the earnings front Lindt & Spruengli, Norsk Hydro and SAP are among the headline makers in Europe, while the US looks to Baker Hughes, Coca Cola, General Motors, Halliburton, Lockheed Martin, Northrop Grumman, Pulte Group, Tenet Healthcare and Texas Instruments. There are the July RBA minutes to digest ahead of the ECB’s quarterly lending survey, and investors wait on trade talks news, though it appears that many of the key negotiations are unlikely to be concluded ahead of the August 1 deadline.
But with the UK’s public finances under the microscope, the testimony of the BoE’s FPC about its recent Financial Stability Report which highlighted the UK Gilt market’s vulnerabilities to ‘fast money’ (hedge funds) and foreign investor flow, given a structural shift in demand, along with Chancellor Reeves annual testimony to the House of Lords’ Economic Affairs Committee which attract most attention. Reeves will face some tough questioning on the government’s fiscal policies, following another monthly PSNB deficit that was well above expectations thanks to rising debt servicing costs. The fact is that most commentators are heartily agreed, and have been for most of this year that the BoE should stop its active Gilt sales as part of its balance sheet reduction programme, and this should be done at the same time as the Treasury & DMO launch a twist operation in which shorter-dated Gilts would be sold to buy back long dated Gilts, thus saving billions in debt service costs. One might add this is not a complex exercise and should already be in place. No, it would not wave a magic wand over the UK’s fiscal problems, but it would help to address them.
Meanwhile US Treasury Secretary Bessent openly discussing
a review of the Fed’s non-monetary policy operations, touting Fed
‘fear-mongering’ about tariffs impact on inflation is a far more potent threat
to the Fed’s independence than changing the Fed chair, even though it would
require likely difficult to achieve approval from Congress. It is also worth
bearing in mind the observation by legendary Bundesbank president Karl Otto
Poehl that ‘central banks are as independent as is politically expedient’, though
that was in an era where there was no QE, and government debt was generally a
lot more manageable.
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