25 May 2021
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BoE Governor expects inflation will be transitory

Bank of England Governor Andrew Bailey said on Monday that any short term rise in prices in Britain caused by global supply chain pressures will not foreshadow longer term inflation problems


By Emirates NBD Research

  • Bank of England Governor Andrew Bailey said on Monday that any short-term rise in prices in Britain caused by global supply chain pressures will not foreshadow longer-term inflation problems once the economy emerges from the pandemic. His comments come as the UK's inflation rate jumped to 1.6% y/y in April from 0.7% y/y in March, due to a mix of higher oil prices, rises in regulated household energy bills and comparisons against weak prices a year ago during the depths of the pandemic. Bailey pointed out that public inflation expectations are "well anchored". The BoE forecast this month that consumer price inflation would rise above its 2% target to 2.5% by the end of this year, before slowly falling. His comment was echoed by, Michael Saunders, an external member of the BoE's Monetary Policy Committee who added that interest rates were likely to need to rise by a small amount – close to half a percentage point over the next three years - if the economy recovered as forecast.
  • Bank of Japan Governor Haruhiko Kuroda said yesterday that the unevenness of the world's recovery from a coronavirus-triggered recession could lead to an increase in savings, economic inequality, and indebtedness. He added that as the global economy emerges from the pandemic's initial hit, the role of central banks will shift from providing liquidity support to helping companies stay solvent. He said the uneven nature of the global recovery could aggravate inequality which, together with increased concern over climate change, provides fresh challenges to policymakers. Kuroda said rapid digitalization could increase productivity but may heighten inequality if the benefits are felt by only a small fraction of society.
  • US Deputy Treasury Secretary Wally Adeyemo said he anticipates strong support from the G7  for the Biden Administration's proposed 15%-plus global minimum corporate tax, in turn helping  solidify the case in the US Congress for domestic corporate tax legislation. He said he received supportive comments about the Treasury's proposal from France, Germany, Italy and Japan, adding that support may be voiced at an in-person meeting of G7 finance ministers in London on June 4-5. The Treasury last week floated a global minimum rate of 15% or higher, well below the Biden administration's 21% minimum rate for US companies' overseas income and its 28% proposed domestic corporate tax rate. In 2017, the Trump administration and Republicans in Congress cut the rate to 21% in 2017 and instituted a minimum tax rate on overseas income from intangible sources of 10.5%. The US global minimum tax proposal is expected to be a key topic of discussion at a preliminary virtual G7 finance leader’s meeting on Friday.

Today’s Economic Data and Events

10:00     EU German GDP (QoQ) (Q1) Forecast -1.70%

12:00     EU German Ifo Business Climate Index (May) Forecast 98.1

18:00     US CB consumer Confidence (May) Forecast 119

18:00     US New Home Sales (Apr) Forecast 975K

Fixed Income

  • US Treasuries gained at the start of the week even as there was no real catalyst for a move higher or lower. Yields fell across the curve with 2yr UST yields closing below 0.15% and the 10yr UST yield richer by 2bps at 1.6012%. Several Federal Reserve officials again touted the transitory nature of supply chain bottlenecks and shortages and that their impact on inflation would be temporary. Breakevens have moved lower from recent highs with 10yr UST breakevens at 2.46% overnight compared with 2.56% around a week ago.
  • Emerging market bonds advance as well. Yields on 10yr South African government bonds fell 3bps to 9.334% while similar Turkish bonds saw yields close lower by more than 1bps to 17.46%. In India 10yr government bond yields are consolidating sub 6%, closing at 5.972% overnight.
  • Fitch cut its rating on Emirates REIT to ‘C’ in light of a debt exchange. Elsewhere, Fitch affirmed Ajman Bank at ‘BBB+’ with a stable outlook.


  • The dollar was offered across all major peers thanks to a general risk-on move in markets. The broad DXY index fell 0.19% to 89.844, holding close to the 90 level that has been a resistance in the last six months.
  • EURUSD managed gains of nearly 0.3% to settle at 1.2216 while USDJPY fell to 108.75, a drop of 0.19%. Elsewhere AUD and NZD recorded the only other notable gains among majors with the AUD up 0.26% to 0.7752 and the NZD rising 0.5% at 0.721.
  • TRY managed to appreciate against the USD with the pair falling by around 0.33% to 8.3876 while USDZAR witnessed a similar sized drop to close at 13.9245. USDINR moved in the opposite direction, however, closing at 72.965 and up 0.17%.


  • Equity markets started the week on the front foot after many sold off last week. In the US the NASDAQ was the notable gainer, closing up 1.4%, but the Dow Jones (0.5%) and the S&P 500 (1.0%) also closed up.
  • In the UK, reopening optimism drove gains of 0.5% in the FTSE, a sentiment largely shared on the continent as the CAC and the DAX also closed higher, by 0.4%.
  • Within the region the DFM closed flat at the start of the week, while the ADX closed up 1.0%, continuing the strong gains the index enjoyed last week. It is now up 31.1% ytd.


  • Oil markets recorded a strong set of gains to start the week even as talks continue on Iran returning barrels to the market in a substantial way. Brent futures added 3% to close at USD 68.46/b while WTI rose 3.9% to USD 66.05/b and Murban jumped nearly 5% to USD 68.88/b.
  • Iran has reportedly reached out to China to support it in nuclear negotiations currently underway. Iran also agreed to extend international monitoring of its nuclear facilities by at least an additional month.

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Written By


Emirates NBD Research Research Analyst

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