Greetings,

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).

Source: Bloomberg LP

Moreover, corporate sterling-based bond issuance is down 50% from last year, resulting in limited supply.

Source: @Dealogic 

10. UK pharma shares are enjoying Brexit and the BoE action. The international nature of pharmaceuticals creates a good hedge against weak sterling while lower rates help reduce financing costs.

Source: Bloomberg LP

11. A publicly traded UK commercial real estate fund jumped 2% on the BoE announcement.

12. According to the Recruitment & Employment Confederation, the UK labor markets have been impacted by the elevated uncertainty in the corporate sector.

Source: Recruitment & Employment Confederation, Markit

13. Higher UK inflation forecasts (based on the Bloomberg survey) did not seem to deter the BoE in their "bazooka" easing action. 

Source: Bloomberg LP

1. Switching to the Eurozone, here are the retail sales PMIs for Germany, France, and Italy. Is Italy going back into recession?

Source: @MarkitEconomics

2. Spanish 5y government bond yield hit new lows on the BoE announcement.

Source: Bloomberg LP

3. According to Barclays, "Monte Paschi's clean-up would only cover about 13% of the Italian system's bad loans".

Source: ‏@vexmark

4. The Eurozone market-based inflation expectations remain depressed despite all the QE efforts.

Source: Bloomberg LP​

5. It's worth noting that the UK's massive current account deficits are mostly with the EU. According to Morgan Stanley, this suggests that the euro has more upside against the sterling. 

Source: @acemaxx, @MorganStanley

1. Moving to emerging markets, the latest Russian inflation figures were below consensus on soft consumer demand (discussed earlier this week).

2. Saudi Arabia's balance of trade continues to deteriorate. 

3. The Brazilian stock market rally continues. 

Source: Investing.com

Based on historical data, the rally above isn't supposed to happen until a year after the opening ceremony of the Olympics (which Brazil is hosting).

Source: ‏@Callum_Thomas

4. The South African rand hit the highest level since last November. Below is the explanation (chart shows dollar falling against the rand).

Source: barchart.com

Source: Bloomberg.com

In Japan, the longer-dated JGBs continue to sell off. Here is the 40y JGB yield.

Source: Bloomberg LP

Dollar-yen is testing the 101 support level again and some suggest the yen could strengthen much more from here.

Source: barchart.com

1. Back in the United States, the Atlanta Fed's GDPNow model is projecting Q3 US GDP growth of over 3.5%. It's not impossible but many analysts are skeptical.

Source: @AtlantaFed

2. US factory orders remain relatively soft and the trend isn't great.

 

3. Manufacturers are working down inventories. Here is the ratio of US durable goods inventories to unfilled orders.

4. US reserve balances (at the Fed) continue to decline as the Fed's new programs, particularly the RRP, soak up some liquidity - albeit temporarily.

5. The M2 (broad money supply) is growing at 7.2% while the US nominal GDP has increased 2.4% on a year-over-year basis. A unit of credit expansion buys increasingly less GDP these days. This trend has resulted in record low velocity of money.

6. It seems that aging population not only shrinks the workforce but also reduces productivity as baby boomers retire.

Source: @WSJ

1. In the equity markets, chasing low vol stocks is becoming a crowded trade. Everyone wants a "low volatility" strategy (especially with risk-parity becoming more widely-used).

Source: Carlson Capital, h/t @MattGarrett3

2. According to the WSJ, "companies routinely steer analysts to deliver earnings surprises".

Source: @WSJ

3. According to Morgan Stanley, 81% of equity hedge fund alpha comes from longs and 19% from shorts.

Source: @NickatFP

4. Out-of-the-money equity put vol (cost of protection) continues to drop.

Source: @vexmark 

1. In credit markets, HY bonds are still ahead of the S&P500 YTD.

Source: Ycharts.com

2. According to LCD, globally there have been 107 corporate defaults so far this year - the most since 2009.

Source: ‏@lcdnews  

3. Related to the above, the US energy sector default rate is in the 20s and continues to rise.

Source:  ‏@jsblokland 

4. We've had a hefty outflow from HY funds this week.

Source:  ‏@lcdnews,  @mfuller2009

1. Turning to commodities, the crude oil bounce continued.

‏Source: barchart.com

2. According to the Department of Energy, "crude-by-rail volumes to the East Coast are declining". As discussed before, it is now cheaper to import than to transport by rail in many cases.

Source: @EIAgov

3. The chatter of weak US pork prices and soft consumer demand sends hogs price lower again.

‏Source: barchart.com

4. The last commodities chart shows US egg prices relative to historical data.

Source: @USDA

Finally, it turns out that the latest selloff in bitcoin started prior to the hacking of Bitfinex (exchange). This fact is rather alarming and certainly does not help with confidence in the nascent marketplace.

Source: @FTMarkets

Turning to Food for Thought, we have 5 items today:

1. According to Business Insider, "the number of people who are trying to buy guns in the US keeps breaking records".

Source: ‏‏@themoneygame

2. The typical British day is plotted in terms of different media usage.

Source: @paul1kirby, @Ofcom

3.  Venezuelan asylum applications to the US spike.

Source: ‏@FactTank  

4. How far does your $100 go in each state.

Source: ‏@taxfoundation, @AlanMCole

5. ‏95% of the population (7billion people) live in an area covered by a mobile connection (except Metro North).

Source: @JmBadalamenti, @ITU

Have a great weekend!