It's deja vu all over again. Yesterday, Draghi sent EUR and Bund yields surging on his 'hawkish' comments, which he was forced to talk back just over an hour ago, and today the confusion is back and it is the UK's turn as Bank of England governor Carney just hinted that the removal of stimulus is likely to become necessary, reversing on his own dovish stance unveiled just last week. The section in question is the following: Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional. The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months The reaction, just as yesterday, is a spike in cable and gilt yields.
# As Bloomberg reports,
“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional,” Carney said in prepared introductory remarks for a panel at the European Central Bank Forum on Wednesday in Sintra, Portugal.
The comments mark a shift in emphasis after the governor signaled last week that now was not yet the time to start that process. In his speech on Wednesday, he clarified that that was his position as of when the MPC last met on June 15. Lifting rates hinges on whether spare capacity in the economy erodes and the balance between supporting growth and tolerating faster inflation becomes less stark, he said.
“When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove,” he said. “Moreover, with domestic inflationary pressures, particularly wages and unit labor costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.”
# And the reaction is clear, sterling buying...
and Gilt selling...
How long before his remarks are walked back or "clarified"?