How IDEAglobal Moves Markets

Reliable, informed, and precise information is the key to seeing and assessing risk; IDEAGlobal allows you have a clear vision of where the markets are heading and here we provide a reecap of key calls over the last 6 months 

1. ECB leaning more towards 4.00% than 3.75%

Date: 4th December 2006

Key Article: ECB leaning more towards 4.00% than 3.75%

Key Message: While a debate exists on extending tightening to 3.75% or 4.00%, the internal consensus within the ECB is converging around a core view that rates should be hiked to 4.00% in 2007.

Outcome: The market consensus had been inclined towards a dovish ECB press conference on December 7th, with only a 50% probability being discounted of a further tightening move to 3.75%. The ECB introductory statement and press conference's hawkish undertone surprised the market and prompted a significant expectations shift in the Euribor curve to fully price a move to 3.75% and towards the risk of a move to 4%.   The ECB consensus is converging around a core view that rates should be hiked to 4.00% in 2007

2. BoE: Difficulties reaching a consensus on inflation causes huge

policy uncertainty

Date: 7th February 2007

IDEAGlobal Alert: BoE: Difficulties reaching a consensus on inflation causes huge policy uncertainty

Key Message: IDEAGlobal bias is that, on balance, the MPC will not hike in February, but will create a measured path to interest rate expectations with the help of the February 14 Inflation Report before acting again on the BoE bank rate. Notwithstanding the uncertainty to the impulse to UK inflation, IDEAGlobal believes that the Sstg market and Gilts are more than fully priced.

Outcome: Fears of aggressive BOE rate action are tempered and Sstg sees a noticeable bounce, both as the BOE keeps interest rates unchanged on February 8th and as the February 14th inflation report points to a measured path for interest rates to achieve the 2% CPI inflation target in 2 years.  Notwithstanding the uncertainty to the impulse to UK inflation, IDEAGlobal believes that the Sstg market and Gilts are more than fully priced.

3.  Riksbank: Not overly hawkish

Date:30th January 2007

IDEAGlobal Alert: Riksbank: Not overly hawkish

Key Message: Due to the Riksbank's previously sub-target inflation forecasts two years ahead, it may project that interest rates will be below neutral (4.0-4.5%), in two years' time. Also it's not clear that the central bank's outlook beyond the expected February rate hike has changed as much as has the market's increased fear of more tightening.

Outcome: Sharp decline in FRA yields occurs in 2 steps on a less hawkish than expected Riksbank policy stance. First on guidance from Riksbank Rosenberg on 5th February and then on February 15th as the Riskbank Monetary report projects multi year rate normalisation stopping at 3.75%. SEK also losses 2% against the EUR over this period.