BOE: Key takeaways from today's TSC testimony
Bailey, Breeden, Dhingra and Mann have concluded their testimony to the Treasury Select Committee. Here are the key highlights:
- Breeden's view: We learned that Breeden would have voted for a 25bp cut in May irrespective of global factors and she didn't describe the decision as close. She also explicitly noted that the Minutes stated not all members who voted for a 25bp cut held this view. So she seems to have distanced her view a little from Lombardelli and Breeden and is tilted a little more to the dovish direction. She noted that nothing had changed to challenge the Agents' pay settlements expectations.
- A popular line amongst MPC members now is that the direction of the rate path is downwards but the timing and terminal point are very uncertain. We have seen this line in other recent MPC appearances, and expect it to continue making appearances going forward.
- There was no discussion of June and a cut then appears off the table. There was also no steer to either August or beyond, so knowing that Breeden is a bit more dovish is the key takeaway view here - particularly as she doesn't speak that much and so we can assume that unless something materially evolves in terms of pay settlements that she is likely to be at least as dovish if not more so than Governor Bailey.
- Rate projections: Governor Bailey said that using market paths in the rate projections made little sense and seemed to suggest that eventually market paths probably wouldn't be used at all but that there was quite a bit of work for the BOE staff to do before they could get to this point.
- On scenarios: All of the members agreed that the scenarios and model improvements had improved the MPC's discussions and that they enabled them to quantify effects and run different aspects through the model (Mann used an example of the steepness of the Phillips curve).
- Labour market data: Both Bailey and Breeden pointed to relying more on the HMRC data as well as other labour survey data given LFS issues.
- Surveys to get namechecked by Bailey: Agents and DMP surveys (both are BOE surveys), PMIs, CBI surveys, Lloyds Bank survey.
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USDCAD TECHS: Hits Bear Trigger, New Cycle Low
- RES 4: 1.4415 High Apr 1
- RES 3: 1.4296 High Apr 7
- RES 2: 1.4087 50-day EMA
- RES 1: 1.3906/3935 High Apr 17 / 20-day EMA
- PRICE: 1.3793 @ 17:00 BST May 2
- SUP 1: 1.3760 Low Apr 21 and the bear trigger
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
The trend set-up in USDCAD deteriorated further Friday, with prices slipping through the bear trigger to narrow the gap with next support. The fresh cycle low reinforces the bear cycle and signals scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear mode position, highlighting a dominant downtrend. First resistance to watch is 1.3943, the 20-day EMA.
AUDUSD TECHS: Consolidation Phase
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6470 High May 2
- PRICE: 0.6445 @ 16:59 BST May 2
- SUP 1: 0.6344/6316 Low Apr 24 / 50-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
AUDUSD remains inside a consolidation phase, having traded either side of the 0.6400 level for 10 consecutive sessions. The underlying trend remains bullish and the pair is trading close to recent highs. Price has recently breached a key resistance at 0.6409, the Dec 9 ‘24 high. This breach reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6316, the 50-day EMA. A clear break of this EMA would be a concern for bulls.
US TSYS: Rates Retreat, Sentiment Improved Though Trade Risk Remains
- Treasuries look to finish near late Friday session lows after trading firmer on the open, higher than expected Nonfarm payrolls at 177k (sa, cons 138k) of which private contributed 167k (sa, cons 125k) triggered the early reversal.
- However, two-month revisions of -58k offset the 39k beat for nonfarm payrolls, with a similar story for private (a 42k surprise vs -48k two-month revision).
- Stocks are back near four week highs - pre-"Liberation Day" levels as hopes of some trade deal being made improved sentiment.
- The Wall Street Journal reports that "Beijing is considering ways to address the Trump administration’s gripes over China’s role in the fentanyl trade... potentially offering an off-ramp from hostilities to allow for trade talks to start." The Journal notes that "discussions remain fluid" and China "would like to see some softening of stance from President Trump".
- Currently, the Jun'25 10Y contract trades -20 at 111-07.5 vs 111-02 low -- initial technical support (50-dma) followed by 110-16.5/109-08 (Low Apr 22 / 11 and the bear trigger). Curves bear flattened, 2s10s -3.480 at 48.002, 5s30s -4.911 at 86.807.
