BOE: Taylor: 5 cuts and neutral rate 2.75-3.00% - lower than other MPC members

Jul-02 10:01

Taylor is done talking for now on Bloomberg and the text of his Sintra speech is here (which was due at 11:30BST / 12:30CET).

In this speech he reiterates the 5 cuts in 2025 that he said in the Bloomberg TV interview (mentioned above): "After some shocks and noise clouded my view of the economy and global developments in the first quarter, my reading of the deteriorating outlook suggested to me that we needed to be on a lower rate path, needing five cuts in 2025 rather than the market-implied quarterly pace of four."
On the neutral rate Taylor says "I estimate the UK neutral real rate to be about 0.75 to 1 percent, putting the neutral nominal rate at around 2.75 to 3 percent"
"Getting there, under our baseline scenario without further shocks, would take more time and a continued removal of restrictiveness in 2026 and 2027 as the economy returns to long-run real and nominal equilibrium."
We note that estimate of 2.75-3.00% for the neutral rate is much lower than said by other MPC members recently.

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Jun-02 09:53

In the equity space, the trend condition in S&P E-Minis remains bullish. Last Thursday’s initial gains delivered a print above 5993.50, the May 20 high and a bull trigger. The break highlights a resumption of the uptrend and maintains a price sequence of higher highs and higher lows. 6000.00 has been pierced, an extension would open 6057.00 next, the Mar 3 high. Key support lies at 5742.22, the 50-day EMA.
The trend cycle in EUROSTOXX 50 futures is unchanged, it remains bullish and recent weakness appears corrective. Moving average studies are in a bull-mode position, highlighting a clear dominant uptrend. Sights are on 5516.00, the Mar 3 high and the key bull trigger. Clearance of this level would strengthen a bull theme. Key support to watch lies at 5254.09, the 50-day EMA. A clear break of this average would signal a possible reversal.

Jun-02 09:51

While the Canadian dollar relatively underperforms on Monday, it has extended its impressive advance during Friday’s session, following a robust set of GDP data across Q1 and an associated trimming of cut expectations for this week’s BOC decision. Market pricing now assigns just a ~20% chance of a cut, compared to ~28% prior to Friday’s release.
Price action backs up the prevailing bear trend for USDCAD (-0.31%) - through which a sell-on-rallies theme clearly persists – evidenced by the 20-day EMA capping the pair’s gains well last week.
Sights are on 1.3643 next, the Oct 9 low/Sep high. Below here, attention will be on 1.3579, the 1.5 Fibonacci projection of the Feb 3 - 14 - Mar 4 price swing, before the September lows at 1.3420 will garner attention.
Scotiabank believe the BOC’s case for holding the policy rate is based on much more than last week’s GDP data, explaining that cutting due to the latest inflation & jobs data or demand side risks has little merit. Scotiabank points to inflation expectations remaining elevated, tariff related risks and the fact the markets aren’t pressuring the BOC as bolstering the case for a hold.
Additionally, while Goldman Sachs think CAD could benefit from a slightly more hawkish BOC in the very near-term, they believe better growth will be the larger positive impulse for the currency in the medium-term.

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