Sterling Soars on BoE’s Vlieghe Hawkish Comments

European stocks are lower with the FTSE down more than 1.2%, following an explosion in the subway. The London explosion has been declared a terrorist incident. Details are still lacking, but, there have been reports of a “burning device” and multiple injuries. The incident happened in Parsons Green tube station, which is in a residential area of west London. Bunds yields jumped higher as ECB executive board member Lautenschlaeger said: “it is time to take a decision now on scaling back our bond purchases at the beginning of the year”. The 10-year Gilt is up 6.1 basis points at 1.29%, after hawkish comments from BoE’s Vlieghe earlier and as Sterling continues to strengthen. Eurozone peripherals are outperforming.

ECB’s Lautenschlaeger said that now is time to make a decision on QE reduction. The Executive Board member said the ECB must help markets to get an idea of how the exit from special policy measures will look. She admitted that inflation is picking up more slowly than expected, but according to reports she added that now is the time to take decisions on scaling back QE.

Eurozone Trade Surplus Narrows in July

The Eurozone posted a trade surplus of EUR 18.6 billion in July, down from EUR 21.7 billion in the previous month. Exports declined over the month, while imports picked up. Unadjusted data also show a narrowing of the trade surplus compared to July last year, with exports up 6.1% year over year and imports 8.2% year over year, with the trend for the first seven months of the year, showing an even stronger rise in imports. The strong EUR is leaving its mark as it boosts import demand. Export growth remains robust, but at least on a nominal basis, the trade surplus is narrowing, with the total for the first seven months of the year amounting to just EUR 130.2 billion, compared to EUR 154.1 billion in the first seven months of 2016.

The BoE’s Vlieghe said a hike could come “as early as in the coming months” during a speech in London Friday. This is notable as Vlieghe has earned himself as being the most dovish member of the Monetary Policy Committee, having been in a minority of one in favor of cutting rates in July 2016, and who said just a couple of months ago that “a premature hike would be a bigger mistake than one that turns out to be slightly late.” He said Friday that, “the evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise.” This fits the tone of the BoE’s statement, which emphasized the dwindling spare capacity in the economy while hinting that it will likely upwardly shift inflation projections in the next quarterly edition of the inflation report in November.