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MPC* keeps its very accommodative stance for the time being

16 May 2017

French elections came as no surprise, and markets did not react, given they had anticipated the outcome.

Earnings season continues and is close to its end : it is the best since 2008 in almost all areas, especially in Europe and Japan where reports are quite impressive. Another positive feature is that EPS estimates for 2017 and 2018 have not been revised downwards, unlike the past five years.

Bank of England delivered a dovish speech with a 7-1 vote for keeping policy stance unchanged (markets expected 6-2 or 5-3). Logically GBP sold off and UK bonds rallied. We had as well a very low Japanese CPI print, which was no surprise since Tokyo area inflation data was reported on the soft side earlier. Here again, markets reacted in a logical manner with lower JPY. Last, most expected data came out Friday afternoon with US inflation – disappointing – and retail sales – disappointing too, but positive revision. All in all, data is not great but not terrible either. Bond yields are down markedly on this.

Elsewhere, we must point out that commodities are once again a hot topic for investors: oil has come off, iron ore too and soft data came out of China. The market has slowly focused again on China / commodities for the last couple of weeks. We think we are in a traditional Chinese “stop and go“, with heavy inventories in the beginning of the year and an unwinding of speculative positions. We keep our long stance on European basic resources equities.

 

* Monetary Policy Committee (Bank of England)

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