Yesterday’s news front was very active with lots going on. The dominant news story seemed to be the world’s major banking names receiving significant fines and investigation for colluding in the FX market to push currency prices in the direction that suited their internal positions. The impact of these investigations usually takes the form of hefty fines – that some of the banks will not have made provisions for – and thorough investigations resulting already in terminations of employees, with no doubt more to come.
But the ongoing impact is often felt most heavily. The cost to banks of making a thorough review of their processes and changing how these work is very expensive and will lead to further losses to their balance sheet. It is the right thing to do, of course, to protect shareholders and the economy at large from these practices, and will hurt their profits even more.
The Bank of England’s quarterly inflation report was on the dovish side – erring toward cautious growth expectations - which did dilute the GBP strength significantly. Carney largely pointed out the risks that he had expected in August had come to pass but the outlook remained broadly balanced, although the rate hike called for Q1 2015 could be at risk of delay due to these factors. The wage growth was actually higher in September, as a surprise, so it really shows the rapidly changing economic landscape given that these were a key reason not to hike rates last quarter.
Today, then, we see a lot of jobs data from the US which always has a tendency to move the rates around significantly. The UK has a bond auction as well which will be affected by yesterday’s commentary so not a lot on the plate today – time for the markets to digest.
Posted in Daily Market News on Nov 13 2014