Archive

HEW: Hawks Fly Into the Fed Meeting

• This week’s data releases have extended the hawkish pressures despite the US PMI disappointing. Shockingly high inflation appears to be eroding real demand. Delayed Fed cuts raised speculation of BOJ intervention, but Indonesia was the one to hike.
• The Fed is set to maintain rates at its upcoming meeting. It should indicate that the next move will likely be a cut, but it is appropriate to wait longer. Like the consensus, we expect Euro area inflation to remain at 2.4% in the April flash.

By Philip Rush

Japan Policy Rate 0.0% (consensus 0.0%) in Apr-24

• The BOJ has maintained its policy rate at 0.0-0.1%, consistent with market expectations, reflecting ongoing economic recovery with moderate inflation, set against a backdrop of global economic uncertainty.
• Future interest rate decisions will be influenced by global economic conditions, domestic economic performance, inflation trends, and financial market stability, with a vigilant approach towards any necessary adjustments to maintain economic growth and price stability.
• The central bank projects that the economy will continue to grow modestly above its potential. It expects CPI inflation to stabilize around 2% by fiscal 2025 and 2026, supported by government measures and favourable financial conditions.

BoE Throwing Cats Among Pigeons

• Comments from BoE MPC members have roiled market pricing recently amid perceived contradictions between each other and the hawkish flow of macro data.
• Members make different risk assessments that vary the evidence required to cut. Shocks this month are insufficient to break the dovish belief in disinflationary progress.
• Further resilience would encourage MPC members to delay their dovish hopes, just as it did with the FOMC. An unlikely hasty cut risks repeating the BoE’s 2005 policy error.

By Philip Rush

Leaman - What’s next? Bulk annuity insurers

The Bulk Purchase Annuities (BPA) sector is continuing its rapid growth and is poised to benefit from substantial regulatory reforms following the Government’s review of Solvency II. Lisa Leaman outlines how the new Solvency UK insurance regulatory regime – in particular the reforms to the matching adjustment - will support insurers to meet the commitment they have made to further invest in assets that benefit the UK economy. There are new opportunities and challenges ahead, and Lisa explains how the PRA, working with industry, aims to respond to these.

The speech by Lisa Leaman at the Bulk Purchase Annuities Conference discusses the changes and developments in the bulk purchase annuities (BPA) sector. The sector has experienced rapid growth in demand, fueled by improved scheme funding levels and higher interest rates. The structure of transactions has also evolved to meet demand, with increasing complexity and features such as long price locks and deferred premiums. The Solvency UK reform package aims to support the industry in investing more in the UK economy and enhance transparency in the sector. The proposed reforms include greater investment flexibility within the MA portfolio, removing the cap on MA benefit for sub-investment grade assets, and simplifying the regulatory process. The speech emphasizes the importance of adapting the MA rules to enable the life insurance sector to play a bigger role in productive investment. The focus on accountability, resilience, and transparency is highlighted, with proposed changes in attestations and enhanced disclosures to ensure the prudence and financial strength of the industry. The speech concludes with optimism for the future of the BPA sector, anticipating positive developments including sound management of defined benefit liabilities, increased transparency, and productive investment in the UK economy.


Positivity Score: 85
Uncertainty Score: 30