E The Daily Shot And Data - August 5, 2016


We begin with the UK where the Bank of England will not only cut the benchmark rate (to record low) but also undertake another round of quantitative easing (QE). The total BoE balance sheet expansion could be as much as £170bn, including gilts & corporate bond purchases as well as lending to banks. The overall package is broad and well-balanced.

1. Here is Carney's statement summary.

Source: Reuters

2. This chart shows the total BoE QE target over time.

However, the above doesn't take into account Carney's new bank funding scheme which is also a form of QE (funded with reserves).

Source: Reuters

3. The 10y gilt yield hit record lows in response. Jamie McGeever from Reuters pointed out that ironically "since Brexit (voted for by pensioners), UK's 10y yield has plunged from 1.40% to record low 0.65%, decimating UK's pensions".

Source: Bloomberg LP

4. Some have pointed out that the UK is "turning Japanese" as the 10y gilt-JGB spread approaches record lows.

Source: ‏@DavidInglesTV 

5. The British pound dropped 1.6% in response to the BoE's dovish stance. It was a small move relative to the EU Referendum shock (much has already been priced in) but a significant one nonetheless for a major currency.

Source: Investing.com

6. Sterling LIBOR futures jumped on BoE's rate cut and the probability of another rate cut by year-end rose. Carney refuses to entertain any possibility of negative rates.

Source: barchart.com

Source: Bloomberg LP

7. Treasury yields also dropped on the BoE announcement with the 10-year back below 1.5%.

Source: Bloomberg LP

8. UK banks rallied on the new lending program and ...

... banks' CDS spreads tightened. Here is the RBS sub 5yr CDS.

Source: Bloomberg LP, @markets

9. GBP-denominated investment-grade bonds, which have already been rising on lower rates, spiked in response to the BoE's announcement (which included corporate bond purchases).

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