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Pre-Markets Push Higher on BoE Re-Think

Wednesday, September 28, 2022

Ahead of the opening bell this Hump Day morning, market futures are in modestly positive territory, following a reversal of monetary policy announced early the morning by the Bank of England (BoE). The Dow currently looks to open +100 points, with the S&P 500 and the Nasdaq up +10 and +15 points, respectively. We started off the trading session in the green yesterday, too, but wound up mostly giving it all back. Fingers crossed for a better result today.

After a recent tax cut policy was announced in Great Britain, shortly after the election of a new Prime Minister, Liz Truss, we saw the value of the British pound tumble and repercussions in the British bond market (known as “gilts”), which was speedily putting the UK at odds with most of the rest of the major economic powers across the globe.

Today, we see a “significant repricing” of UK and global assets from the BoE, extending bond purchases and delaying the sell-off of a monthly $85 billion (U.S.-dollar equivalent) for another month. This has caused the 30-year, 10-year and 2-year gilts to spike by their sharpest rise in 65 years, binging British bond yields to levels not seen since 2008. Thus begins a new push-pull process in monetary policy to our ally across the pond.

We also saw a new Advance Trade in Goods report out for August this morning, with a deficit of -$87.3 billion — its fifth-straight month of narrowing the deficit, from a more deeply revised -$90.2 billion the previous month. This is also thankfully far removed — and going in the right direction — from the abysmal -$125 billion+ we saw back in March of this year. It’s also the lowest print since October of 2021.

Both Imports and Exports were both down last month, by -$1.7% and -0.9%, respectively, We also saw a hefty increase in Shipments, led by an +8% rise in consumer goods. There is still a ways to go before we’re back to the leveling-off period of the 20-teens, which saw Trade in Goods numbers steadily around -$6 billion. This is not one of those direct-correlation to domestic inflation metrics we see from other data releases, but a shrinking trade deficit does have obvious economic benefits overall.

After today’s open, we’ll get Pending Home Sales results for August, with expectations coming down -1.4% following -1.0% last month. We’ve seen elsewhere ample evidence of erosion in homebuying demands — although August New Home Sales grew much higher than expected in yesterday’s report. We feel we may be seeing the last gasp of major homebuying activity before the real dormant period begins, which would send home prices down farther and continue to work down inflation aspects.

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