BoE base rate rise?

BoE base rate rise?

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Discussion

mikeh501

729 posts

183 months

Friday 3rd November 2017
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On a more practical level, can anyone succinctly explain the relationship between inflation, stocks, base rate and currency? What can we take a "truths" from a investing standpoint to help plan our investing.



mcbook

1,384 posts

177 months

Friday 3rd November 2017
quotequote all
mikeh501 said:
On a more practical level, can anyone succinctly explain the relationship between inflation, stocks, base rate and currency? What can we take a "truths" from a investing standpoint to help plan our investing.
Traditional economics would indicate that:

Rising stock prices (healthy economy) will be accompanied by inflation

Where inflation is deemed excessive, the base rate should be raised to counter this, by discouraging borrowing (personal and corporate)

Higher base rates generally mean a stronger currency (think of a global investor who has £1m to invest between two countries... they'll put the money where they get the greater return)


That is all greatly simplified but is correct in terms of broad theory.

Jon39

12,935 posts

145 months

Friday 3rd November 2017
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mcbook said:
Higher base rates generally mean a stronger currency (think of a global investor who has £1m to invest between two countries... they'll put the money where they get the greater return)

That is as we would expect, but what happened yesterday ?
The UK base rate rise was anticipated, but still there was an immediate FX movement when the announcement was made, against USD (I don't know about other currencies) in the opposite direction.

Perhaps I have overlooked the obvious, but no complaints anyway, because it boosted the values of my dollar earners.

Can anyone provide an explanation ?







mcbook

1,384 posts

177 months

Friday 3rd November 2017
quotequote all
Jon39 said:

That is as we would expect, but what happened yesterday ?
The UK base rate rise was anticipated, but still there was an immediate FX movement when the announcement was made, against USD (I don't know about other currencies) in the opposite direction.

Perhaps I have overlooked the obvious, but no complaints anyway, because it boosted the values of my dollar earners.

Can anyone provide an explanation ?




Carney's comments after the decision indicated that he didn't think the economy was very strong and it wasn't likely that there would be subsequent rate rises, not immediately anyway. This was news to the market as the general consensus was for a rising trend.

RizzoTheRat

25,342 posts

194 months

Friday 3rd November 2017
quotequote all
Jon39 said:

That is as we would expect, but what happened yesterday ?
The UK base rate rise was anticipated, but still there was an immediate FX movement when the announcement was made, against USD (I don't know about other currencies) in the opposite direction.

Perhaps I have overlooked the obvious, but no complaints anyway, because it boosted the values of my dollar earners.
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About a 2% drop against the Euro too, bit of a pain when I'm paid in pounds but spending in euros.

Jon39

12,935 posts

145 months

Friday 3rd November 2017
quotequote all

mcbook said:
Carney's comments after the decision indicated that he didn't think the economy was very strong and it wasn't likely that there would be subsequent rate rises, not immediately anyway. This was news to the market as the general consensus was for a rising trend.

Thank you Ian.
It makes sense now.



stongle

5,910 posts

164 months

Friday 3rd November 2017
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You didn't have to wait till Carney spoke. The language was already dropped in the MPC statement.

The BOE is going to be the good boyfriend, so expect rates to .75 by 2020 unless an outside event.


Jon39

12,935 posts

145 months

Friday 3rd November 2017
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stongle said:
The BOE is going to be the good boyfriend, so expect rates to .75 by 2020 unless an outside event.

Ah, some more years to do extra borrowing then.

I hear there is a new mobile phone, and it 'only' costs £1,000.
That sounds great. Only need it for a year though, because there should be a 'better' one then.

( Reason for being annoyed. Years ago, I noted that Apple were selling a £20 mp3 type music player, for hundreds of pounds. What I failed to realise, was they would keep their party going for such a long time. Anyway, investors should ignore hindsight. )

Any Apple holders from the 1990s on the forum ?







Edited by Jon39 on Friday 3rd November 14:41

GR_TVR

719 posts

86 months

Friday 3rd November 2017
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Jon39 said:


Any Apple holders from the 1990s on the forum ?
Only if there's WiFi on their private beaches.

DonkeyApple

56,080 posts

171 months

Friday 3rd November 2017
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Jon39 said:

mcbook said:
Carney's comments after the decision indicated that he didn't think the economy was very strong and it wasn't likely that there would be subsequent rate rises, not immediately anyway. This was news to the market as the general consensus was for a rising trend.

Thank you Ian.
It makes sense now.
Yup. If you look at the 6 month chart against USD and EUR then you can see that the rise was anticipated by investors from around August so longer term money has been moving in over the last few months. The drop yesterday was due to the notes that further rises are not anticipated any time soon so the speculators both removed money and slapped it down with speculative sales.

In theory, with everything remaining constant, this fast money action will be undone over the coming month or so and you should see the two pairs back to where they were at the start of the week.

Retail investors love to blame the 'algos' these days like they used to blame the market makers but the sell off was a very much program derived event by the speculative funds. We remain now in a rising rate environment for the GBP and lagging the USD but leading the EUR and this hasn't changed which is why you'd generally expect levels to revert and the trend of the last few months to continue.

anonymous-user

56 months

Friday 3rd November 2017
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RizzoTheRat said:
About a 2% drop against the Euro too, bit of a pain when I'm paid in pounds but spending in euros.
It dropped 1.6% yesterday and has regained 0.6% today as yet again Carney gets it wrong on his forecasting for the economy, today's figures released show higher gains than expected with expected quarter growth looking at 0.5%, service sector growth smashed his expectations.

http://www.bbc.co.uk/news/business-41856442

Jon39

12,935 posts

145 months

Friday 3rd November 2017
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jsf said:
It dropped 1.6% yesterday and has regained 0.6% today ....

Have just done my end of week figures, and noticed that the weakening of the Pound, against both the USD and the Euro,
is only 0.5% over the whole week (since last Friday close).





peter tdci

1,776 posts

152 months

Friday 3rd November 2017
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GR_TVR said:
Jon39 said:


Any Apple holders from the 1990s on the forum ?
Only if there's WiFi on their private beaches.
Won't their staff handle the social media stuff?