2 Interest Rates Cuts Already Priced In

[ftb_2005]

Surely only one way for house prices to go?

http://www.futuresource.com/quotes/custom....us=LSS&t=Future

[blackjack]

Can sombody explain what these figures mean?

[houseinspect]

looks pretty clear to me - NOT!

[verolution]

Its the futures market for BOE interest rates. Subract the figure from 100 to get the rate that the market is predicting for that date:

i.e

Short Sterling Dec '05 15:31:00 95.640

100-95.640 = 4.36

[Numani]

Can sombody explain what these figures mean?

<{POST_SNAPBACK}>

basically.

when the quote says 95.70 it means they expect a rate of 4.30%

(you subtract the figure from 100)

e.g. december 2005 contract is trading at 95.65 which is a rate of 4.35% since this roughly half way between 4.25 and 4.50% often people will say theres a 50% chance of half point rate cut. a quarter rate cut from here looks fully priced in (i.e. a sure thing)

[ftb_2005]

as people have said above the figures show that rates will most probably be going to 4.25% in the very near future

[MarkG]

the figures show that rates will most probably be going to 4.25% in the very near future

No, it just shows that most people expect the rates will be going to 4.25% in the near future. Most people expected house prices to rise 20% this year too.

[kerplonk]

good point MarkG

this is only forecast, not reality. something very different could happen between now and then

does anyone have the historical data on interest rates uk vs usa?

i know it's been mentioned on here a few times and i'd like to see how they've tracked over the years.

some keep saying there's no way UK interest rates can go down when USA's are going up.

can someone explain that thinking?

is it because of the value of the currencies?

[Starcrossed]

is it because of the value of the currencies?

<{POST_SNAPBACK}>

Yes.

Especially with oil being so high - oil is priced in dollars.

If/when IRs drop then the £ in turn will drop as markets chase higher returns in the US - then inflation will go up.

Edited June 29, 2005 by Starcrossed

[kerplonk]

doesn't that mean then the moment they lowered UK rates, they'd have to raise them again to stop inflation?

if lowering them means inflation, then surely it's not a possibility with oil priced so high.

why then is there a rate cut priced into december trading?

what do these people know we don't?

or are they stupid?

or do they think oil will come down between now and then, leaving the BOE room to maneouvre?

[MarkG]

if lowering them means inflation, then surely it's not a possibility with oil priced so high.

That's exactly why I think we're far more likely to see interest rate rises than cuts.

what do these people know we don't?

A very good question.

[erd]

The numbers change all the time, they mean nothing. If they did, why would we bother with data gathering over the next 6 months, quartly boe reports, have a 2 day monthly meeting?

It is not much different from the us fed chief saying long term rates should be higher, but the market not raising them.

[spoon]

these markets reflect ALL the information that is currently out there.

financial markets have a habit of LEADING central bank policy not the other way round.

note also that if these predictions were way off the MPC would act to temper expectations of a cut. that said i think they are forbidden from speaking on the subject during the two week window prior to the next meeting on 7th July.

[zzg113]

if these predictions were way off the MPC would act to temper expectations of a cut

...which they have done:

http://news.independent.co.uk/business/new...sp?story=646787

Mervyn King, the Governor of the Bank of England, last night moved to stem mounting speculation of a cut in interest rates, using a keynote speech to highlight the risks to the inflation target.

[FTBagain]

For what’s it worth I think the confusing data means more sitting on hands by the MPC. As many have stated on this forum the data is very contradictory at the moment and an unadvised move on the IR could trigger the very thing the MPC is trying to counter at the time (inflation / HPC).

They are on a knife edge of their own (or is that the Feds) making.

Looking back at the inflation report for last month, a fall in fuel cost helped to counter inflation in food. Now fuel is on the up and if last year is anything to go on it is going down no time soon. So unless something else is falling then the ‘up risks’ must be close to over coming the 'down risks' driving up inflation. Again hard to call but flat or small rise in inflation is my best guess for the next figures, followed by no more talk of an IR cut.

Just my take.

FTBagain

[ftb_2005]

Can the UK continue to have such high rates compared to the rest of Europe?

EU - 2%

Sweden - 1.5%

[oracle]

Don't pay too much heed to these figures.

only 3 months ago UK 10yr yield was 4.83%,meaning that there was a small number still forecasting a 25bp rise in IR's,ok this has fallen back a touch.

we are still in the final throws of a bond bull market as well,so there is some excessive speculation driving yields down here....much like the BTL scene.

I suspect with oil now back up at $60pb since then the inflation figures will not allow for any rate cut any time soon.(I'm still calling a rise)

[zzg113]

Can the UK continue to have such low rates compared to the rest of the world?

Australia: 5.5%

New Zealand: 6.75%

South Africa: 10.5%

Brazil: 19.75% (!)

China: 5.58%

Mexico: 9.375%

India: 5%

etc etc etc.

[spoon]

though understandable, i think we risk spending too much time debating the future of interest rates. higher rates can certainly deflate the bubble but lower rates are unlikely to lead to further asset price appreciation.

[FTBagain]

I remember reading on here a couple of weeks ago that UK IR tend to stay at least 1.5% above US rates, or we import inflation via the old Pound falling against the Dollar. Given the news reported on the BBC about US growth and the likelihood of another 25bpp in their rates and you have another reason for the UK rates to go up!

http://news.bbc.co.uk/1/hi/business/4634255.stm

Not looking good for the bulls' IR cut is it!

[MarkG]

lower rates are unlikely to lead to further asset price appreciation

Another reason why cuts are unlikely. They'd have to drop rates to 2-3% to have any chance of significantly increasing house prices, so why bother?

[oracle]

not good for the bulls at all!!!

US rates look like they're heading up again this month,and probably will continue for a while longer....although I expect they will pause at about 4% for a year,after all,they too have a housing bubble in part,so if they pause the stock market will supply the rest of the shakeout,without leaving too bad a taste in the mouth,especially if it's plastered all over the papers DOW reaches all time high..

just the incentive for a)getting out of houses

b)getting into stocks

HOWEVER,THE PAUSE WON'T LAST TOO LONG THEN I SUSPECT IT'S UP,UP AND AWAY WITH THE IR'S ALL OVER AGAIN.

similar thing to happen here I think,smaller IR rise plus huge personal tax rises.....and we will have some nasty unemployment(but who cares,sterling is weaker now so FTSE earnings are up!!)

Edited June 29, 2005 by oracle

[DonnieDarker]

I've got a lot of savings in the bank.

Anyone got any bright ideas what to do if interest rates are cut and subsequently the interest I earn on my savings goes down?

Seems like I'm in a lose lose situation if rates go down.

It makes life easier for the home-owning public and it reduces the value of my savings that I have slaved to build.

[oracle]

yes donnie,if that is the scenario,buy US$ or asian currencies.

if you have a large enough amount you're best looking at cityindex for some stuff on going short sterling....whatever you do,don't try to change it at thomas cook!!!!....that's one hell of a rip-off,you need something forex-based.

[Reptile]

No, it just shows that most people expect the rates will be going to 4.25% in the near future. Most people expected house prices to rise 20% this year too.

<{POST_SNAPBACK}>

Well said.